Many people have less disposable income as a result of the recession, which has contributed to pay freezes, unemployment and difficulty in getting credit. If you are contemplating buying a car but you cannot afford to pay for the car outright, there are other options available, including the choice of car finance.

How does car finance work?

Car finance is a means of getting a car without giving the full amount up-front. Finance allows you to spread the cost over a fixed period of time. Most companies offer a fixed payment scheme over a set period of time once a deposit or down-payment has been made, while some will offer payment plans without a deposit; though the interest rates are likely to be higher.

Finding the best deal

There is an array of companies offering finance deals and it is well worth spending some time looking at different finance agreements, if only to make sure that you get the best deal for your money.

There are various funding sources available, including car dealerships and banks and building societies. Dealership agreements tend to be straightforward and convenient, but banks and building societies are likely to give you a better rate.

Before you start shopping

Before you start looking at cars and finance plans, take time to sit down and determine your budget. You need to know how much you can afford to spend on a car each month, so work out your outgoings compared to your income, and remember to take added costs such as tax and insurance into account. Calculate your down-payment and determine how much you want to spend each month and how long you want the borrowing term to be. This will allow you to work out roughly how much your monthly payment will be.

It is also a good idea to work out your credit rating. If you have a low credit score you may be offered high interest rates or struggle to get finance at all. If you do have a poor credit rating it may be worth spending a bit of time trying to improve your score before you apply for a car loan or agree a finance deal, as the amount you could borrow may increase and you will be offered better borrowing rates.

Read the small print

Be sure that you are fully aware of the terms of the agreement before you agree to used car credit. Look at the monthly payment rate, the interest rate and the length of the contract, so that you know exactly what will be coming out of your account and when. It is also a good idea to check out if there are additional fees, such as set-up costs or penalties for early payment. If you sign up to a plan which includes mileage restrictions, make sure you are aware of the charges, if any, for exceeding the set mileage. It is also a good idea to check administration costs.

Shop around

With so much competition in the market, there is room for manoeuvre when it comes to sealing a deal, so try your best to haggle and get the best deal possible. Many dealers offer incentives for new clients, so have a look around and see what is on offer. Look out for rebates and 0% finance costs and use your charms to work on the dealer. It is advisable to do some research before you go in all guns blazing; make sure you are aware of the deals and finance agreements on offer, as the dealer you see may match offers available at other dealerships.

Car finance does not have to be complicated and the Internet has made it easy to compare deals; the best thing to do is have a clear idea of how much you want to spend over how long and then you can find out what kind of car you can afford and calculate the monthly payments.