Car Buying Tips – Finance and Insurance

Anyone thinking of buying a new or used car has a huge range of options to choose from in terms of manufacturer, type of car, gas, diesel or electric etc. Whatever the individual chooses to buy in the end, it is important from the outset to understand the various additional costs that can be incurred by either choosing the wrong type of finance or not appreciating what insurance costs could be involved.

Most people buying a new car will need to arrange some type of finance to fund it. There are some people who will literally be cash buyers but they are few and far between. The majority of people will look to some type of finance or credit arrangement either with the manufacturer or with another lending institutions such as a bank or credit union.

If looking to buy a new car, then it is also well worth considering the option of leasing a vehicle rather than buying it outright. Leasing a vehicle is similar in many ways to a long-term rental, but with a few and advantages and disadvantages. The advantages tend to be that someone can effectively get hold of a brand-new car that they would not be able boys to afford to buy. The disadvantages often tend to centre around the lease end arrangements, where significant additional costs can be involved to cover extra mileage, additional wear and tear and any damage or deterioration of the condition of the vehicle.

When an individual looks to finance a new or used vehicle the manufacturer or their dealership will require a credit application to be filled in. The manufacturer will then use a credit rating agency to obtain a credit score for the individual. This credit score will then be used as a guide by the manufacturer or dealership to assess the creditworthiness of the individual. Based on this assessment, the dealership or manufacturer will then decide whether to offer the individual a loan, and if so how much, how much of a down payment, what rate of interest to charge and over what period of time. This process is pretty much the same whether the individual is looking to buy or lease a vehicle.

When someone is looking to finance a new car it is always a good idea to get as many different quotes as possible from different lending institutions, and compare them on a like-for-like basis. Some people look to refinance their loans at a later stage of the loan period, but this can be a tricky process often only up costing a lot more money.

The costs regarding insurance should also be taken into account. People should be aware of what the legal requirements are for they live in terms of liability insurance, but they may be unaware that the manufacturer will want them to take out comprehensive and collision insurance as well.

Another insurance cost that will need to be factored in is that of GAP insurance. GAP insurance effectively covers the difference in depreciation between the value of the vehicle when purchased, i.e. the full amount of the loan, and its subsequent value at any point during the period of the loan. If the car is written off or badly damaged in an accident, then the insurance company will pay less than the purchase price of the vehicle, due to depreciation. GAP insurance is designed to cover this difference.

An Easy Tor Read, Explanatory Article on, "What Is Finance Gap Insurance?"

The trouble with any form of Gap Insurance is that drivers are simply unaware of how important it is. This easy to read explanatory article has been written to help you to understand the importance of Finance Gap Insurance, avoiding the stereotypical insurance jargon.

Finance Gap Insurance, also known as Contract Hire Gap Insurance only applies to a vehicle which has been bought under a financial agreement, such as, contract hire, hire purchase or a lease purchase.

In the most simplistic explanation, Finance Gap Insurance is designed to allow the driver to walk away from a finance agreement with no liability if in the unfortunate case the vehicle is written off. When taking out a finance agreement for a vehicle, the only concern the driver involved has is ultimately paying the agreement off after the end of the agreed period.

When taking out a finance agreement, the majority of drivers are unaware that if in the unfortunate case the vehicle is written off, even if it through no fault of their own, they are still responsible for paying off the agreement.

For illustration purposes, Barry has bought a Honda Civic under a finance agreement which requires Barry to pay £200 for the next 24 months. However as a result of poor motorway maintenance, 12 months down the line, Barry is involved in an incident which writes his vehicle off, but thankfully leaves him unhurt.

So Barry is in theory still liable for 12 months of £200 payments, totaling £2400. Barry’s comprehensive insurer pays him £1200, leaving the outstanding £1200 still under Barry’s liability.

This is where Finance Gap Insurance comes into play. This policy would essentially pay Barry the remaining £1200.

Barry is now free from any financial liability.

Please note: Finance Gap does not reimburse any financial penalties which are as a result of late payments that occurred before your vehicle was written off.

Please note: Finance Gap cannot protect a loan shortfall if the agreement is not linked to a vehicle. For example, if it is instead linked to a Bank or a Personal Loan.

Please note: If your finance agreement involved you paying a large deposit, or if instead you paid for your vehicle by cash, this form of Gap Insurance is not for you.

Please consider Return to Invoice (RTI) or Vehicle Replacement Gap Insurance.

Again in the most simplistic terms:

Return to Invoice returns you to the original invoice price you paid for your vehicle if in the unfortunate case your vehicle is written off. If your comprehensive insurer pays you £10,000 and you originally paid £20,000 for your vehicle, then this policy would bridge the gap and pay you the outstanding £10,000.

Vehicle Replacement replaces your vehicle if in the unfortunate case your vehicle is written off. If you paid an invoice price of £20,000, and are informed that it has increased to £25,000, and your comprehensive insurer only pays you the £10,000, then Vehicle Replacement would pay you the outstanding £15,000 you need to purchase a vehicle of the same age, mileage, condition as you originally bought.