Buying your first car is exciting. It’s a symbol of freedom. It’s a symbol of independence. Most of all, it gives you unprecedented flexibility and is often a prerequisite for entering the job market.

But buying a first car is also usually hard. Not only because it’s expensive. Not only because you’ll need to lower your expectations quite a bit. But also because many sellers and lenders won’t trust you. Sometimes, you will need to do a lot of searching before you can finally find someone who will make you an acceptable offer.

Thankfully, you can make things a whole lot easier for yourself.

Simply opt for a used model for your first car. There are many reasons why a second hand vehicle is best. And not all of them have to do with price.

In this article, we’ll give you some concrete buying advice.

Don’t skip this part!

If you play it smart, then your first car will be something you’ll lack back on fondly.

And if you’re looking for hands-on help, give us a call. At iFinance, we’ll gladly take a look at your application even if you don’t have a real credit score yet.

Just give us a call at 0141 848 7733
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Ready to go?

Then it’s time to talk to us about car finance. At iFinance, we know all about the problems that first time drivers face. For us, a perfect credit score or a big deposit are by no means requirements to find a suitable car.

Instead, what matters is whether you can realistically pay off the loan. To assess this, give us a call at 0141 848 7733 and we’ll go through a few simple questions with you. If we can offer you finance, then you can drop by our showroom in Paisley near Glasgow and select a car that fits your budget and needs.

If you remember to take your passport and driving license, you could be enjoying that freedom and independence on the very same day!

First car: Everything is more expensive

Let’s get the bad news out of the way first: Whatever you do, however well you plan and approach things – your first car is always going to be expensive.

For starters, you don’t have as much money yet. So even if you can get a really, really great deal, it would still feel expensive to you. Sometimes, you won’t even have a permanent job yet. So you’ll either have to tap into your savings or rely on friends and family to help you.

Even more importantly, the car and everything connected to it will not just feel, but actually be more expensive. This is because you

a) don’t have any driving experience yet. So insurance companies will ask for higher premiums to make up for the higher risk.
b) don’t usually have a comprehensive credit score yet. So lenders will demand a higher interest rate to compensate for the higher risk associated with that.

Whether or not this is fair or justified is another question. The fact is that things have always been like this. So you need to find ways to deal with them.

Save money by going used

It is easy to see why buying a used vehicle is an effective way out of this conundrum: it is considerably cheaper. Cars loose a lot of value over their first year and continue to depreciate drastically over the next two. So you could buy a three year old car, which will feel almost as good as new, at a much reduced price.

But there’s more.

a) The insurance premium for a used car is typically lower. The reason for this is that the replacement and repair costs are far lower in case of an accident or theft. (Also, a used car is less likely to get stolen.)
b) Financing costs for a used car are typically lower and not just because of the lower price. Here, too, the risk for the lender is lower if you default on the loan.

On top of that, the second hand car market offers better choice than the new one. You can’t customise a used car like a new car. But there are more models at your disposition and from different model generations. Plus, you can often get pricey extras at almost no additional cost.

The only thing you won’t get is that new smell in the passenger cabin. Although there are now sprays for that, too.

Your first car: The CSS approach

We’ll be honest: Just about everyone prefers a factory-new car. There’s just something to putting the keys into a car that’s never (properly) been driven before. That feeling of building a deep bond with a car, almost like the beginning of a friendship.

Still, when it comes to your first car, other factors should be more important than that.

At iFinance, we believe in the CSS criteria. These three qualities are the ones you should focus on:

• Your first car should be cheap. This is not to say that you should buy the most inexpensive model you can find. But you should definitely try to keep the price down as much as possible.
• The car should be safe. Especially if you’re opting for a considerably older car, say something around the ten year mark, that vehicle should have had a perfect EuroNCAP score at the time it was introduced to the market.
• Your first car should be small. Probably, this is what you’ll be looking for anyway. But it’s worth repeating: A small car is easier to drive, easier to park, cheaper to maintain and cheaper to buy. It’s also easier to love, if that’s something you care about.

What about new safety technology?

One development on the car market over the past decade has been the increasing relevance of and progress in safety technology. Cars are starting to look more and more alike and even smaller manufacturers have made huge strides in terms of build quality. Safety is therefore one of the last areas where premium brands can set themselves apart from the fold.

So, how much better has safety become? Plain and simple: The improvements have been huge. In terms of digital technology, many innovations are significantly reducing the risk of collisions. These include Electronic Stability control, automatic and emergency braking, blind spot monitoring, lane departure warnings, speed monitoring and warning systems as well as parking assistants.

But it’s not just digital technology that has progressed.

New materials and smarter car designs are reducing physical harm for drivers, passengers and pedestrians/cyclers involved in a crash.

A used car may seem like a compromise. But bear in mind that even a ten year old car can still very much be pretty safe.

Not all technology is instantly made redundant by novel developments. Just make sure the model you choose is as good as it can possibly be. And remember the most important safety feature of all: Alert driving.

What to look for in a used car?

We mentioned the CSS approach. Let’s now get into a little more detail on what you should be looking for. Here are some of the technical qualities your first car should ideally possess according to car magazine Auto Express:

• Light steering,
• good visibility,
• a responsive engine and responsive brakes,
• user-friendly controls,
• and a positive gear shift.

All of these relate to how well a car drives. Which explains why models like the Ford Fiesta or the Volkswagen Polo continually rank high on these charts: They are not just very practical, high quality cars. They are also great to drive, especially for beginners.

On the other hand, personal preferences play a vital role.

You need to feel comfortable in your car, regardless of how it may feel to others. Take the Fiesta and the Polo: While the former offers an engaging, fun performance, the latter offers the calm and complete control of a far bigger car.

Both are perfectly valid experiences. What matters is which one you feel safest and best with.

What are some of the best first cars?

Taking what we just said into account, Auto Express arrive at the following top 10:

1. Volkswagen up!/Skoda Citigo/SEAT Mii
2. Kia Picanto
3. Ford Fiesta
4. SEAT Ibiza
5. Hyundai i10
6. Volkswagen Polo
7. Toyota Aygo/Peugeot 108/Citroen C1
8. Skoda Fabia
9. Dacia Sandero
10. Vauxhall Corsa

Here are a few more recommendations by various publications from around the web:

• Honda Civic: Business Insider laudes it for being ‘bulletproof’ and for being cheap to repair. Also, it can easily be customised, which is obviously a great quality if you’re buying used.
• Car Bibles praises the Subaru Impreza for its functionality and fuel efficiency. It is also a car that feels like an SUV despite not, strictly speaking, being one.
• Hyundai Elantra: Hyundai is an obvious candidate for a beginners’ car, just like Dacia, simply because of the pricing of their vehicles. But even though the Elantra is not expensive, it certainly does not feel cheap. Its strengths include a spacious passenger cabin and great fuel efficiency.

Another interesting fact: The Ford Fiesta’s MyKey system allows parents to control how their children drive the car. Certainly a feature to think about for first time drivers.

Some tips on finance

As we mentioned, costs will always be an issue for first-time car buyers. That’s not to say, however, that you can’t make some improvements.

To help you save some money, we’ve compiled a few of the best car finance tipps:

First car finance tip #1: Set a budget

Extremely obvious, which may be why so many buyers forget about it. Before even setting foot in a showroom, you should know exactly how much you can spend.

Trusted Choice has squeezed this wisdom into an easy to remember formula:

Set a Budget, Pick a Car – In That Order.

Another important thing to remember is that the purchasing price is actually just one cost among many. So if you’re deciding on a budget, make sure to include the following as well:

• Car insurance
• Road tax
• MOT test
• Tyres
• Fuel

First car finance tip #2: Buy from a dealer

With a used car, there are two main options: Buying from a private person or from a dealer. (Of course, you can also buy at an auction house, but that’s certainly not something we’d recommend for first time buyers.)

It goes without saying that you can get somewhat better prices for used cars on the private market. This is because there is no middle man here.

However, buying from a private seller has its downsides:

• It’s usually buyer beware. Which means that there are no guarantees or typical methods of recourse should something be wrong with the car after all.
• You can usually check and test drive the car. Still, the risk of buying a lemon is significantly higher than with a dealer.
• You will still need to set up car finance for the car. Which may be something a dealer can do better than you.

Dealers have stepped up to the challenges facing the industry considerably. They have also become a lot better in terms of offering highly competitive loans. For your first car, they should be your main point of contact.

First car finance tip #3: Make a deposit

If you can make a deposit, you should. The simple reason is that car finance with even a small upfront payment is a lot cheaper than car finance without one.

By paying a deposit, you reduce the risk for the lender and you also shave a bit off the purchase price, which is the base for calculating your interest rate. So the loan as a whole becomes a lot less expensive.

You will also be able to pay off the loan in full a lot faster.

If, however, you’re experiencing financial trouble, it is probably best to avoid laying down a deposit. Yes, you will pay a bit more. But on the plus side, you’ll have more reserves to fall back on in case something goes wrong.

At iFinance, we discuss this with our customers on a case by case basis. Unlike other dealers, we do not insist on a deposit, but consider it an option.

First car finance tip #4: Don’t think too big

When looking for a car, your enthusiasm is bound to be huge. But your means are tiny. This is a perfect recipe for disappointment. Don’t let that prospect lure you into biting off more than you can chew.

Opting for a used car is one step in the right direction. Choosing the best car for your needs rather than the car of your dreams is the next one.

It is helpful to realise two things:

• When you’re only just beginning to drive, you don’t know yet what you really need and enjoy. So it makes sense to buy a cheap, stripped down car first and to upgrade later.
• Buying cheap allows you to pay off the loan faster and switch to a different, more exciting car sooner. Buying new and/or expensive will most likely lock you into a contract for longer and thus lead to more problems later on.
  As you gather experience and build up a credit score, future car finance is potentially going to be cheaper, allowing you to buy more expensive models by better brands.

First car finance tip #5: Go for telematics insurance

Car insurance is going to be one of the biggest costs if you’re a new driver. If you want to cut costs and are okay with a certain level of control, telematics car insurance is a great way to save money.

Essentially, what this comes down to is installing a black box in your car which monitors and tracks your routes. It can thus determine whether you’ve been a careful or carefree driver, which translates to a low risk or high risk.

These boxes can also shut off the car at specific times of the day. One way of significantly reducing the danger of a crash is to only allow use of the car during daylight hours. By far the most accidents occur in the night and thus restricting this can make your policy a lot cheaper.

Rejection is a natural part of life. We all need to learn to deal with it. But sometimes, rejection can be more than just a little painful. If you need a car for work urgently, but your bank won’t grant you a loan, for example.

In cases like these, you will need to come up with a solid strategy if you want to turn the tide. In this article, we want to give you a few ideas on how to do that.

There is certainly no reason to give up hope. Plenty of our customers have been rejected multiple times before turning to us. Now, they are back behind the wheel again. And they’re driving a far better car than they ever imagined they could afford.

Potential reasons for rejection

When you apply for a car loan, you will usually be in touch with a financial manager or assistant. Sometimes, you will spend quite some time discussing your case with her. And yet, that person is hardly ever the one making the actual decision.

As in many other areas of life, algorithms decide on loan applications these days. And those algorithms run on rules. Banks and credit unions decide on these rules to maximise profits. In addtion, they will also follow national law.

So there is a simple logic to it all: You get rejected for a car loan because you did not meet the rules. The bright side of this, of course is: If you do follow the rules, you should, theoretically, get accepted.

Here’s a list of typical reasons why the bank’s algorithm would reject you:

• Simple formal mistakes: Maybe you haven’t filled out all relevant sections of the form. Or the information you did provide was insufficient or contradictory. If you had to provide reasons as to why you applied, these may not have been good enough.
• Bad credit history: Your credit history tells the lender about how well you paid back your debt in the past. If the history suggests there were many problems or even defaults, this makes it a lot harder for you to succeed.
• No credit history: First time loan applicants have always found it hard to succeed. This is because it is impossible for the bank or dealer to determine the risk of lending to you.
• Income & employment: A low income and no employment are considered risk factors. The same goes for uncertain or fluctuating employment. Even being self-employed raises your chances of a rejection.
• DTI: The debt to income ratio reveals how much of your monthly earnings are syphoned off towards paying off your debt. The higher this percentage, the higher the risk of you eventually defaulting.

A fresh perspective

If you’ve been rejected for a car loan, you’ll need to find out what the reason is.

This requires you to take a fresh perspective on things:

We rarely think of a bank or dealer as a partner. But really, that’s what they are. Most people working at a finance company genuinely care and want you to succeed. Not just because they have a heart. But also because that’s how they make their money.

If they could provide you with the money, they probably would. But, as mentioned, banks need to follow rules and have very little to no leeway.

This is why it is by no means an absurd idea to simply ask them for details on the rejection. Or, even better, ask for their acceptance criteria before handing in your application in the first place. That way, you’ll know where you’ll need to make some improvements.

From rejection to acceptance

So what to do to meet the criteria of financial institutions and dealers? The following sections will explain the most promising steps to take in order to get accepted.

We realise that you won’t be able to make all these changes. Some of them are slightly trivial, which means you probably already thought of them yourself. Others may be too hard. If you could change them, then you would have done so already.

What matters, though, is that you try. The current market for car finance is extremely diverse. And sometimes, all it takes to get accepted is a small improvement.

Car loan strategy #1: Verify your application thoroughly

We’ve talked about simple formal mistakes earlier in this article. Although it is true that these do happen quite a lot, they are not usually the real reason for a refusal.

Still, it would be tragic if your carefully prepared application fell through on account of a few missed points in the form. And it goes without saying that the overall impression will be a lot better if your application looks professional and flawless.

The simplest thing you can and should do is to ask someone to proofread your application. Afterwards, make all the corrections and then read it through one more time yourself. You won’t believe how many errors you’ll still find!

Car loan strategy #2: Improve your credit score

Your credit score is really a summary of your past financial conduct in a single number. This makes it both incredibly useful and problematic.

On the one hand, the widespread use of credit scores has significantly sped up the car loan application process. Theoretically, all a dealer needs to do these days is to check whether your score is above a critical level. Depending on the outcome, they can then reject or accept your application. In fact, some actually do this!

On the other hand, clearly, the score does not reflect your full creditworthiness. It is extremely incomplete and you therefore need to combine it with additional data.

That said, if you can improve your rating, you can achieve a serious hike in terms of your chances for approval.

We’ll cover some of the things you can do in the following sections. But we highly recommend to also:

• Check your credit report for correctness. There may be mistakes in there which could cost you dearly.
• Improve your score by very simple steps. These include registering on the electoral roll. Also, try not to move around too much.
• If you are serious about getting a healthier score, try to keep things more organised by consolidating all your debt on one card.
• Finally, get a credit building card at your bank and make all payments with it. This will help you repair a broken rating.

Car loan strategy #3: Reduce debt

Reducing debt is one of the best ways to improve your credit rating. It is also one of the best ways to get accepted for a car loan.

Unfortunately, it is very hard to achieve.

Still, even with financial difficulties, there are a variety of ways to bring your debt down. We’ll discuss these in more details in future posts.

For the moment, consider the following:

• Debt consolidation can be an excellent way to start reducing your obligations. This works by merging your loans into a single, new one with better conditions.
• A Debt Management Plan is another way of getting lenders to agree to new terms with a better chance of fulfillment. These usually only work if your debt is very high, however.
• You can find free debt advice at many institutions. They can assist you with finding realistic approaches and also offer some legal help if required.

Car loan strategy #4: Reduce spendings

Reducing debt and raising your income are typically the hardest pieces of advice to implement. In comparison, reducing your spendings is a lot easier to pull off.

This is because even those of us with the biggest financial problems will often spend money on things we don’t, strictly speaking, need.

It may seem pretty harsh to deny yourself a bit of pleasure from time to time. But tightening your belt at least for a while makes sense.

You can do this by simply looking at your monthly spendings and introducing a reasonable spending cap.

Even if it only helps you save £100-200 each month, that’s a great start.

Car loan strategy #5: Consider paying for a credit rating service

As we mentioned, your credit score is a very important part of your car loan application. So if you get rejected, a bad score may have been one of the reasons.

If you are serious about getting that number up, it can be helpful to pay for a subscription with a rating agency. This will give you permanent access to the latest version of your credit reports. You can watch your score develop over time and wait until the best moment for a car loan application has come.

Also, gaining access to this information will help you gauge whether the steps you’re taking are actually having an effect. If they are, keep on track. If they’re not, revise your strategy.

The only issue with this is that different lenders will use different credit rating agencies. And the scores can be quite different! So theoretically, you’d need to watch all credit rating agencies to be sure.

That, however, is obviously too much and too expensive. Taking out a subscription for one provider can, however, make sense, if you use it to support your strategy.

One thing to consider: Maybe you applied at the wrong place?

If you were rejected for a car loan, there may yet be another obvious reason:

Maybe you simply applied at the wrong place. Banks and credit unions are no longer the best institutions to apply at – even though many experts still like to pretend as though they are.

In reality, dealers are usually capable of offering better prices and conditions. They will also have far better deals for those with bad credit or financial difficulties.

At iFinance, for example, we take great pride in trying to create solutions for as many applications as possible. We don’t extend guarantees. But we do look for opportunities where many banks would long have sent out an automated refusal.

Just give us a call at 0141 848 7733 to see what we can do for you. It doesn’t matter if you’re been rejected before.

Car loans are really not that complicated: All we want is to keep costs as low as possible. No wonder so many dealers are trying to outbid each other with the cheapest loans. It is also why you still see those notorious 0% deals everyone is warning you against.

If there’s a way we can save some money, we’ll take it. It’s as simple as that.

At the same time, fixating yourself exclusively on costs can be dangerous.

Far too many drivers default on their loan and have to watch their car get repossessed.

Quite often, seemingly attractive car loans are to blame. In this article, we’ll explain why that is. We’ll investigate two basic approaches to car loans and point out their respective benefits and disadvantages.

It may sound absurd. But it can sometimes be better and safer to opt for a slightly more expensive option.

As any expert will tell you, you need a strategy when buying a car.

It doesn’t matter if you’re looking for a new or a used car: Without thinking everything through, setting up a plan and then acting upon it, you’re lost.

When it comes to securing a car loan, there are essentially two fundamental approaches. Which of these you chose is as much a matter of taste as it is of budget. In fact, it is a lot more than that. Which of the following you chose may decide whether you’ll enjoy your car for many years to come or end up having to default on the loan and return the vehicle.

• Approach 1 / Total costs: By choosing this option, you aim at keeping the costs low. The easiest way to achieve this is to pay the loan off as fast as possible.
• Approach 2 / Achievable monthly payments: This approach to car finance is all about safety. Your main concern is to keep monthly payments at a realistic, manageable level. You will, however, need longer to pay the loan off. You’ll also pay more.

Conceptually, neither of these approaches is rocket science. But which is best for you?

Focus on: costs

Let’s take a look at approach 1 first. This is by far and wide the method favoured by experts and journalists who have written about the topic.

These are the pillars of the approach:

• Make a down payment to reduce the total loan sum.
• Aim at a short loan term. Most agree that you shouldn’t take longer than four years before the vehicle is yours.
• Try to keep monthly payments as high as possible. This actually ties in with the previous point, because you can only pay the loan off quickly if you stick to a tight payment schedule.

So how would a dealer approach this?

This is what the process would look like in practise:

• In a first step, the lender sets the loan term. Concretely speaking, he works out how long you’ll take to pay off the entire debt on the vehicle.
• In a second step, you establish what interest rate and monthly payment this amounts to.
• The total costs are then a function mainly of the loan term.

It is easy to see why insiders recommend doing things this way: It can potentially save you a lot of money!

How much can you save?

There are plenty of car loan calculators available online. If you’re looking for a deal, these are great tools. They allow you to play with the numbers and run through a few options. This allows you to understand how reducing or raising your monthly payments affects overall costs.

Here’s an example of what this look like in practise:

Let’s say you want to borrow £5,000. If you pay off the loan in 5 years (or 60 months), your monthly contributions will be slightly over £95. The total amount payable is £5,790.89.

Now, if you can chip in about £50 more each month, you will be able to pay your debt off in just three years. The total amount now stands at £5,470.72.

So you’ll have saved £320.

Don’t forget the interest rate

Of course, these numbers are merely theoretical. In reality, you should be able to shave off even more. If you make a deposit and opt for a shorter loan term, your APR may drop even more, making the loan still more attractive.

Also, if you have a better credit rating, this, too, will help keep loan costs low.

This all sounds great. So, you might ask, what’s wrong with it?

The problem with low total loan costs

To understand why focusing only on keeping your car credit costs as low as possible, you need to look at risk distribution.

To visualise this, imagine a seesaw. You’re sitting on one end and the lender on the other. The seesaw will tilt to one side or the other depending on who carries the weight of the risk.

If you have a bad credit rating and no financial reserves, or if you can not make a down payment and want to pay the loan off very slowly, the lender carries most of the risk. Accordingly, the seesaw will tilt all the way to his side.

If, however, you agree to pay the loan off quicker, pay larger monthly instalments and can make a down payment, the risk tilts more to your side. The lender will ‘reward’ this with a reduction in loan costs.

So the faster you pay off the loan, the cheaper it gets. At the same time, the the risk of you defaulting on your loan will be higher. This is easy to understand: If you pay more towards you loan, this leaves you with less for other things.

This is why approach 2 is quickly winning over new fans

With this approach, the process is different right from the beginning:

• The first thing you do is work out how much money you can pay towards your car loan each month.
• In a second step, you establish what loan term and interest rate this amounts to.
• The total costs are now mainly a function of monthly payments.

So the logic is reversed. You act as though you don’t care about the total costs, but only about how much you can actually pay. As a result, car finance costs will inevitably be higher.

If we return to the seesaw image again, this approach establishes more of a balance between the two sides. You reduce your risk. But so, too, does the lender, since the chances of you defaulting are now lower.

But … does it make sense?

The answer to this question depends on your point of view.

As we already pointed out in the very first paragraph, none of us has any money to give away. So no one particularly likes to spend more than they absolutely have to.

But consider this:

• If you’re having financial trouble, it may be a lot safer to focus on monthly payments. This will take longer and be more expensive. But if it saves you from having to go into insolvency, maybe it’s worth it.
• Sometimes, the lender simply won’t accept a cheaper payment schedule. Instead, he will want to keep the risk of the exchange low and thus propose to extend the term a little bit.

So, very simply, approach 2 makes it possible for those with a bad credit history to get behind the wheel again. Experts may disagree this is the best way to do it. But thousands and thousands of happy drivers have already proven them wrong.

Car loans at iFinance: How we do it

At iFinance, it’s all about finding individual solutions. This means that we like to avoid generic approaches which seem simple but only end up making things complicated.

• If you can make a deposit, great. In case you can’t, we’ll work it out.
• If you want to take your time paying off the loan, that’s perfectly fine with us.
• And if you want to go faster, we’ll check if that’s possible.

In any case, there’s a very good chance that you can drive home in a great car the very same day.

We look forward to hearing from you! Give us a call at 0141 848 7733 and visit our digital showroom to see what models we have in store for you.

[If you need a loan now and want to keep car finance fees low, get in touch with us. We’ve helped thousands with a bad credit score find a great car. just give us a call: 0141 848 7733.]

According to a recent survey, more than 50% of all UK consumers – 27 million people – were in debt at the beginning of 2020. A staggering 5 million (20%) owed £10,000 or more, a third between £2,000-£10,000.

Surely, none of us has any money to spare. And yet, an article on This is Money could make you believe otherwise.

In it, the website reports that UK drivers could be spending, on average, almost £1,200 more than necessary on car finance fees.

That’s a lot of money for sure. How could it get this far?

Car finance fees: Are the dealers to blame?

If something is wrong with the car industry, the typical reaction is to blame the dealers. As it seems, this is also the position the government have taken.

The financial watchdog announced it would get tough with dealers and car finance brokers. According to the authority, commissions on sales were to blame for inflated prices and overly high fees.

Without a single doubt, there are some deep issues with the way these companies make their money. In many cases, the commission is tied to the interest rate on the loan: The higher the rate, the higher the commission.

This obviously creates an incentive to make the loan as expensive as possible. Thanks to a ban on this type of commission, customers now stand to save as much as £165 million in car finance fees.

Will it help?

The move is a wise decision. Citizens Advice Scotland was one of the first organisations to welcome the legal changes. Said Myles Fitt, the organisation’s Financial Health spokesperson:

“The fact that some car dealers increase consumers’ interest rates just so they themselves can benefit from a commission bump is outrageous. As motor finance options are on the up through schemes like contract purchases this is the time to make sure consumers are adequately protected against these conflicts of interests.“

The success of a ban is never guaranteed. Dealers may simply find other ways to increase their profits. And yet, even if the ban does indeed achieve what it intends, it would not fully resolve the issue of inflated car finance fees.

For this to happen, you, as a driver and buyer, need to take action as well.

This is because by far the largest part of those £1,200 in unnecessary fees is actually caused by consumers themselves.

In fact, as some experts have pointed out, unless UK drivers wise up, those costs could rise even more.

In general, there are three main sources for inflated car finance fees:

• A lack of knowledge about car finance in general and the details of the contract in particular.
• A failure to shop around and find the best possible deal.
• Too little attention for avoidable charges.

Let’s take a closer look at how you can benefit by taking these three sources for overpaying into account.

Car Finance Fees: Too little understanding

We’re living in the information age. Thanks to the Internet, we now have access to virtually infinite resources on almost any topic imaginable. Car finance is no exception to this rule.

And yet, it would seem as though most UK households are oblivious to the digital revolution.

Here are some baffling facts unearthed by various studies on car finance:

• Almost half of all participants in a study were unable to go on record about how high debt on their car was.
• Nine out of ten participants considered themselves well informed on car finance matters. And yet, barely half were able to explain the meaning behind the abbreviation PCP. This, although PCPs are easily the most successful car finance plan at the moment.
• When presented with a list of different options, almost none of the participants in another study were able to identify the cheapest car finance offer.
• Almost half admitted to a lack of understanding of the basic details of their policy. Even more reported they had not spent time on comparing competing offers.

Clearly, it’s about time this changed.

Knowledge is king: How to turn into an expert

Not everyone needs to turn into a full-blown car fees expert overnight. But it goes without saying that the more you know, the more you can save on car finance fees. At the very least, you should make use of the various easy options to compare different deals.

Most importantly, make sure to shop around. This doesn’t necessarily have to include haggling. Shopping around simply means checking price comparison websites online. It can also mean visiting car dealers on location to get a feeling for the market.

This obviously doesn’t just refer to the purchasing price for the vehicle. It also includes the financing costs. Remember: The lower the APR, the better. And don’t worry if you can only shave a tiny bit off the interest rate. As This is Money point out:

“Saving just one per cent on the cost of hire purchase car finance, by paying 11 per cent instead of 12 per cent APR, could save drivers around £190 over four years, which is enough to cover the cost of 1,724 miles worth of petrol.”

The road to ruin: Hidden charges

Hidden charges are one area where knowledge really pays off. These fees can make a serious dent in your budget and ruin a perfectly great deal if you’re not careful. So you need to be both aware of them before signing the contract and while you’re driving your car.

To understand what we’re referring to here, let’s take the example of a PCP deal. Although these finance plans imply that you’re the owner of the car and can do with it as you please, that’s actually not true. For one, you will need to pay off all the monthly rates as well as the balloon payment at the end of the term.

Secondly, there is typically a mileage limit. Which means that if you exceed this number, every additional mile will cost you a penalty fee.

On average, these charges will add up to around £300. Sometimes, it can’t be helped. But before committing to the deal, make sure you can get by with the agreed-upon mileage.

As you can see, it really pays off to become more knowledgeable on car finance fees. Admittedly, you’ll have to invest a little time. But the potential savings are usually more than worth it.