Car Loans Vs Forecourt Finance

After their house, a car is usually the second most expensive purchase ever made by an individual or family.

Few people are in the position to pay for their vehicle in total from their own financial reserves and often some form of loan or finance is required. Finding the very best deal possible is usually critically important to the majority of car buyers.

There are a vast number of loans available for this purpose and the position can be complicated and difficult to understand. To simplify this, it may help to see these loans as broadly coming into three categories

• Personal Source Loans – the car purchaser obtains a loan from their own sources that are not directly related to the vehicle or the selling dealer. Examples may include a bank or building society personal loan obtained specifically for the purpose of buying a car.
• Manufacturer related loans – these are usually offered for new or recent second hand vehicles probably sold under manufacturer or dealer’s warranty. They may be intended primarily for the purchase of a vehicle of a specific make. So as an example, PEUGEOT Finance may specialise in loans for the purchase of Peugeot vehicles, and FORD Finance may specialise in offering loans for new or warranted second hand Ford cars and so on. These types of loans are normally made available through dealers who also may be linked to a manufacturer so a BMW dealership many specialise in selling BMW cars and may offer purchase finance through BMW finance. If a BMW dealer has a second-hand vehicle such as a NISSAN taken as part-exchange, then it is possible that in some cases BMW Finance loans may be available to purchase it as the dealer will wish to shift the car off their forecourt.
• Forecourt loans. These are usually offered by dealers selling vehicles and are provided through the services of third-party finance companies. These sorts of finance are typically not related to any particular make or model of car.

All three types of car loan schemes have their characteristics and potential pros/cons.

Banks.
Bank and related high-street product loans are sometimes a very cost-effective way to finance a car purchase. The usual credit checks with will be made and the bank will want to know that the applicant will be able to afford and meet the repayment schedule. If during the lifetime of the loan some problems with income arise, then banks and building societies may be among some of the more sympathetic lenders who will look to re-schedule the debt if they can.

On the downside, banks can be reluctant to advance loans for vehicles that are more than 2-3 years old at purchase. Based upon hard experience, they may also have a very pessimistic view of the residual value of a second-hand vehicle and as a result may ask for a significant personal contribution from the borrower by way of deposit.

Manufacturer Linked Schemes.
Most car manufacturers want to sell as many of their vehicles as possible and as a result may sometimes offer incentives such as low deposit schemes, cash back offers and payment holidays etc. Their interest rates can also at times be very attractive. Typically they will also have a more optimistic view of residual vehicle values so may advance more in the loan than a bank would.

It is worth being careful with the combined price of the vehicle and finance. Sometimes an individual dealership may be able to offer the car at a lower price if the buyer is paying via a bank loan (i.e. a cash buyer from their point of view) than they can if the buyer is taking their finance. The interest rate and cash back schemes may look very attractive, but in fact the dealer may be ‘recovering’ these offers in the minimum price for the vehicle they will accept.

Third-Party Forecourt Loans.
These deals are highly varied in nature and terms and it can be difficult to generalise. Typically though they do have the advantage that they may accept more marginal cases in terms of credit checks and also may be less strict in terms of demanding deposits. Some will also have a fairly favourable view of residual values and it may be possible to borrow slightly higher loan amounts. They can sometimes be one of easier channels for finding a loan for slightly more elderly second-hand vehicles.

It may be necessary to exercise some caution with these deals as some companies in this sector can charge much higher interest rates than banks or manufacturer schemes. Some also have a very low threshold of sympathy for borrowers in arrears and may seek to repossess a vehicle much faster than would one of the other scheme types.

In summary, as always with finance, shopping around is highly advisable.

• Car purchase loans obtained via banks may offer attractive interest rates and allow hard negotiation with a dealer as a ‘cash buyer’.
• Forecourt loans from a manufacturer’s scheme can offer attractive additional benefits and attractive interest rates but may in some cases be limited to certain marques or newer vehicles.
• Forecourt third-party loans may be easier to obtain than some others but their interest rates may be higher and they may repossess a vehicle quickly in the event of payment defaults.

Have I got the right insurance?

We pay a lot of money for our car insurance, so it’s important to know that the deal we get is right for us.
It’s important to know exactly what your policy covers – and just as important to know what ‘s not covered.
The only way you can be sure is not to take things for granted and ask the insurer some straightforward questions:

1. What strings are attached for younger or inexperienced drivers?

Generally, expect to pay a bigger premium if you fall in to this category, as the insurer will class you as a higher risk. You might also find you will probably have to pay a higher excess in the event of a claim.

An ‘excess’ is a personal cash contribution you pay towards the cost of a claim. You can have a compulsory excess imposed by the insurance company, and/or a voluntary excess you can elect to pay to reduce your premium.

2. Does the policy have a limit for legal and medical expenses?

If your policy includes legal and medical cover, you need to check the cover is adequate for your needs. Terms and conditions will vary between insurers.

3. Will I have a courtesy car if mine needs repairing?

Many insurers offer courtesy or replacement cars while your vehicle is under repair.
Generally, a courtesy car can be any type of vehicle while a replacement car is one of a similar model and standard to your own.

Ask your insurer if they offer this benefit and what sort of car you will be offered if you need one.
If you don’t have this benefit and don’t have access to another car, then the cost of hiring a car while yours is in the workshop could be expensive if extensive repairs are required.

4. Am I covered to drive overseas?

Some insurers include the legal minimum cover for some countries and exclude others.
If you want comprehensive cover, you may have to pay extra – if it’s only for a week or two, speak to your insurance company about increasing the cover just for the time you are away.

5. Does the policy give the car’s market value or book value if written off?

Go for market value if you have the option – market value considers mileage, the car’s condition and colour, where book value is the price a trader would pay.

6. What will I get back for property stolen from my car?

Some insurance companies have a small amount of compensation – generally £250 - £500 – for property stolen from your car. If you add up the cost of any electronic equipment, sunglasses, jackets or CDs, this can soon go over the limit.

7. Does my insurance cover me to drive other cars?

Most comprehensive car insurance policies will cover the policyholder to drive other cars – but only for third-party, fire and theft risks. This means if you are driving someone else’s car and have an accident that is deemed your fault, the third party is covered but the car you are driving isn’t.

Saving on Car Insurance

Vehicle Insurance is obviously not an ‘optional extra’. Apart from the fact that you will be exposing yourself to huge liability claims if you drive without insurance it is also illegal to drive anywhere on a public road in the UK without your vehicle being properly insured. Since you cannot avoid having to pay for insurance it would make a lot of sense to do everything in your power to make sure that your premiums are as low as possible.

The worst way to achieve insurance savings is to ‘underinsure’ your vehicle by taking out inadequate cover. Another common ‘saving’ that can turn out to be very costly is to accept a ‘lowball’ quote from an obscure company that might not be able to honour the insurance contract that they have with you. The best ways to save, on the other hand, all have to do with doing a bit of homework to ensure that you are assessed as ‘low risk’ by insurance companies. This will of course translate into significant savings on premiums.

Before we look at specific examples of how you can improve your risk profile, it is worth mentioning that you should always ‘shop around’ a bit before accepting an insurance quote. This may seem like a lot of hard work, but there are currently many services around that will submit your profile to a large number of insurers in exchange for a ‘finder’s fee’ (paid by the insurer, not you). Making use of such a service can be a very effective way of slashing your insurance costs.

There are some aspects of premium pricing that will be very difficult to change, short of growing older and changing your car! This is because younger drivers face higher premiums as do very powerful ‘supercars’. The story does not end there however. There are several kinds of discounts available to those who are perceived to be lower risk drivers. Be sure to mention the following when you apply for a quote:

• The length of your ‘no claims bonus’ – If you did not make a claim in the recent past insurers will automatically place you in a lower risk category.
• The ways in which you will use your car – ‘Social use’ (i.e. not using the car to drive to work) will normally lead to lower premiums.
• Membership of professional organisations – Some insurers will offer you a discount if you are a member of a respected professional organisation.
• Your age – Some insurers will lower their premiums once a driver reach age 55, only to raise it again when he/she reach an advanced age. You should therefore be sure to make the best of your ‘golden premium years’!
• Safety features – The installation of advanced safety features could lead to lower premiums.

Some other ways to lower your insurance costs are the following:

• Apply for combined cover. Insuring more than one vehicle with an insurance company could lead to lower average premiums on both (or all) of the insured vehicles.
• Elect to pay a higher excess. If you offer to pay a higher level of excess in case of a claim it means that you assume more risk yourself, leading to a lower monthly premium.
• Choose the right level of cover. For a new vehicle it makes perfect sense to take out comprehensive insurance as replacement costs will be very high. If you drive an older car it might be worth it to just take out insurance for ‘Third Party, Fire and Theft’.

Summary:

• It is illegal to drive without insurance in the UK. Insurance premiums are therefore an unavoidable expense.
• It pays to ‘shop around’ for the best insurance quote.
• If you can somehow prove that you are a ‘low risk’ customer your premiums will be lowered.
• Some other ways in which savings can be made are applying for combined cover and electing to pay a higher excess.

Choosing the Best Current Account

It is perhaps the one financial instrument that we use the most and think about the least: the ‘humble’ current account. Just about every adult in the UK has one and very few of them will ever switch from the one that they have been using for years. This is quite a sad state of affairs since it is quite likely that the account in question (i.e. the one that you’ve had since you started working!) has horrendous overdraft charges and pays very little interest.

It does not have to be like this however. The UK market is flushed with innovative banking products offering exciting features and incentives that could be of real benefit to you. It is also much easier to change accounts than you might think.

So what should you look for in a current account? The answer is that it would be best to find the one account that would fulfil your individual needs the best. There is no ‘one size fits all’ solution when it comes to choosing a bank account. Part of finding the best ‘fit’ would be to determine the usage patterns on your current account. The big question that you will have to answer is how much of the month, if any, you are overdrawn.

If your bank account is always in the black it would perhaps be best to change to a high interest account.

Finding a high interest account (This obviously refers to ‘high’ when compared to other current accounts) is much easier than it used to be as the intense competition in the current account market is forcing banks to offer better rates of interest. Before choosing a specific high interest account it is worth looking at what exactly is meant by ‘high interest’ and if it applies to all the funds in the account or not. In some cases the amount that attracts higher interest is capped at a certain level, while other banks will only pay higher levels of interest if you deposit a certain minimum amount in the account every month. It is possible to get around these issues (e.g. by transferring funds above the cap into a savings account and by making sure that you salary is paid into your current account) but it would perhaps be better to find an account where you are not faced with the hassle of having to do so.

If you make regular use of your overdraft you should perhaps aim for an account that is flexible and relatively cheap when it comes to charges and interest payments. Some accounts offer interest free overdrafts and can therefore be a very good option. You should be aware however that the charges and fees to make use of the overdraft can often be very high, cancelling out any potential interest saving. Another option would be look for a fee-free low interest overdraft. Here you will have to pay interest but at least you will know exactly where you stand and how much you are paying (as opposed to accounts levying daily charges, which can be very confusing)

One last thing to consider before making a final decision about an account is the kinds of incentives and optional extras that you would like included with your account. Do you want an account that could earn you loyalty points? Does your bank have to have a ‘bricks and mortar’ presence or are you satisfied with an online only service? Do you need a cheque book? Answering these kinds of questions will help you a great deal in making your final decision.

Once you have made your decisions about where you want to switch to the process should be fairly straightforward and painless and you can expect that your new bank will do as much as possible to assist with a smooth transition.

Summary:

• Most people stick with one bank account for a long time. This is not a wise financial decision since there is usually a lot to be gained by switching accounts.
• If your account is mostly in the black it would be wise to make sure that you select a high interest account.
• If your account is sometimes overdrawn the choice will normally be between accounts that charge no interest but that does levy fees and charges and account that do not normally have fees but that do charge interest.
• It is much easier to switch accounts than most people realise.

ISA’s – Making Use of Your Tax Free Savings Allowance

Most people are vaguely aware of the fact that they can save some money on a tax free basis every year, some would even be able to tell you that it can be done through something called and Individual Savings Account (ISA). It is the case however that relatively few people make use of ISA’s as an investment vehicle.

Part of the reason for this can perhaps be found in the fact that ISA’s are traditionally seen as quite complex and difficult to manage. The UK government tried to address this by overhauling the rules governing ISA’s, with new rules coming into effect in April 2008. The purpose of this short article is to briefly explain how ISA’s work and what the implications of the new ISA rules are for new investors.

Under the ISA scheme an individual can invest up to £7200 per tax year on a tax free basis. There are two way of doing this, they are:

Cash ISA’s: Cash ISA’s are, as the name suggest, simply cash amounts that are saved under the scheme. The most important thing to remember is that there is a contribution limit of £3600 per tax year if you choose to invest in a Cash ISA.

Stocks and Shares ISA’s: With this type of ISA investors invest in the stock market, usually through some form of managed investment fund. The limit for investment is the full £7200 ISA allowance. It should be noted that the amount that you can put in this type of ISA will be directly affected by how much you have already placed in a Cash ISA. If, for example, you invested £2000 in a Cash ISA, you can only invest a further £5200 in a ‘Stocks and Shares ISA.

You can invest your funds in a Cash ISA, in a Stock and Shares ISA, or a combination of both. If you want to make full use of your Cash ISA allowance and also invest your full ISA allowance (£7200) it will of course have to be a combination since there is a £3600 limit on the Cash ISA.

The big question that investors often ask is whether they should go for cash or ‘stocks and shares’.

The main benefits of Cash ISA’s are dependability and security. Placing your money in a Cash ISA is comparable to putting your money in a bank savings account, but with the added benefit that any interest gained will be tax free. It is therefore the perfect place to invest money to earn interest and maximise tax savings while still having relatively easy access to your funds.

Stocks and Shares ISA’s will be invested in the stock market. Any capital gains that you make on your investment will be tax free, but you will have to keep in mind that you are exposing yourself to the ‘ups and downs’ of the market and that your investment could therefore both increase and decrease in value. Stocks ISA’s, in common with other stock market investments, should primarily be seen as a long term investment.

It is relatively easy to take out an ISA since they are offered by many banks, building societies and investment fund managers. As with all financial products you should be careful to read the small print before committing yourself. It is also always a good idea to get independent advice before making major financial decisions.

Summary:

• ISA stand for ‘Individual Savings Account’ and refers to the amount that you can save tax free every year.
• The rules governing ISA’s have recently been simplified, making it much easier to make use of this very important investment channel.
• There are two types of ISA namely ‘Cash ISA’s’ and ‘Stocks and Shares ISA’s’
• Cash ISA’s are ideal for short term financial management while shares ISA’s should be seen as long term investment vehicles.

A Brief Guide to Internet Bank Accounts

The rise of the internet made radically new ways of doing business possible. One area where this was most keenly felt is the banking sector. With the internet came bank accounts linked to the web that allowed users to interact with their account, and do basic transactions, while online. Some financial service providers went one step further and started creating ‘virtual banks’; that is banks without physical ‘bricks and mortar’ branches. The accounts offered by such internet banks are ‘Internet Bank Accounts’ in the ‘pure’ sense of the word as they are not merely traditional accounts (i.e. accounts held at a physical bank branch) linked to the internet, they ‘exist’ only on the internet.

A large part of the motivation for the setting up of internet banks was cost. It was felt that the lack of physical infrastructure (in the form of a branch network) would lead to significant savings, some of which could be passed on to customers in the form of better interest rates. It is still often the case that ‘internet only’ accounts offer some of the best rates on the market. It will however, as with anything else, be worth your while to do a bit of research in order to find the best deal for you in your specific circumstances.

The advantages of Internet Bank Accounts are:

• Better in interest rates (in many cases)
• The ability to do your banking at any time
• There is no need to travel long distances (if you live in a rural area for example) in order to visit a bank branch.

The main drawback of internet accounts is linked to one of its strengths namely the lack of branches (which can lead to cost savings and better interest rates). If something goes wrong with your account there is not a branch that you could go and visit to sort out the problem. You will instead have to get on the phone to discuss the issue with someone in a call centre. This can potentially be a very frustrating experience.

Some of the things to consider before choosing an internet account are the following:

• How easy is it to use? If you open an internet account you will spend a significant amount of time on the web managing your account. If the site is slow and complicated it will obviously make your life quite difficult. It is therefore always a good idea to get a few recommendations on ease of use from a few (non techie!) friends before making a final decision.
• What is the fee structure? Some accounts are quite expensive to manage, to the point of charging per transaction for basic things like transfers or setting up bill payments. It is therefore a very good idea to read the ‘fine print’ about charges before signing up.
• What restrictions are there on the account? Online banks operate in an environment where there are significant security risks. They protect themselves by making use of encryption but also by sometimes placing limits on account activity (e.g. the number of transfers allowed per day, the amount you can transfer per day etc.). It could be that you are very comfortable with this kind of arrangement. However some people might find it too restrictive.
• How much interest will I earn? One of the main reasons that people choose internet account is the relatively high interest that they can earn. It is therefore a very good idea to research the best rates and to make sure that the rate that you are being offered is permanent and not just introductory.

Summary:

• Internet bank accounts allow customers to do their banking without having to set foot in a local bank branch.
• Some internet accounts offer very good interest rates linked to the savings made on maintaining a branch network.
• It pays to shop around to find the best account for you
• Ease of access and the cost structure are two of the main things to consider when choosing an internet account

How much do you pay for car insurance?

Far too much is the quick answer – mainly because most people are just too lazy to put in some legwork to save themselves some money.

The main culprits are those people who simply renew their policy with the same insurer year after year without checking around to see if there is a better deal.

You can compare motor insurance premiums as well as policy features and benefits easily by using our service.

You will find out what you can pay rather than what you are being charged because car insurance is a competitive market and insurers are falling over themselves to get your business.

So how do car insurers work out their premiums?

Basically, underwriting a motor insurance policy is a risk assessment. The insurer takes three main factors in to account:

1. Your claims history as a driver
2. The type of car you drive and the car’s value
3. The risk address – this is the place where the car is parked overnight and not necessarily your home

The insurer’s aim is to charge enough in premiums from their pool of customers so they can pay out for any claims made by drivers they insure – and don’t forget you are also shelling out for their administration costs, plush offices and profits as well.

If you are a youngster with a poor claims history driving a sports car and living in an area with a high crime rate, your risk is high, so your premium will reflect this.

If you are middle-aged with a maximum no claims discount, drive a standard family car and live in a low crime country area, your premium will be much reduced compared with our other driver.

You can reduce the cost of your car insurance in several ways:

• By taking out lesser cover that is cheaper – like third party fire and theft rather than fully comprehensive insurance or paying for a couple of week’s cover on a friend or relative’s car instead of adding a courtesy car in to your policy
• By paying a voluntary excess that reduces the insurers risk and allows the premium to be adjusted downwards
• By comparing products and premiums with a price comparison service
• By changing your car to a less powerful and less expensive model
• By upping the security on your car by adding an alarm, immobiliser or a GPS unit so the car can be tracked if stolen
• By reducing your annual mileage – the fewer miles you travel the less you present yourself as a risk to the insurer.

In the long-term, just paying more attention and becoming a safer driver who makes no claims will earn you a big no claims discount that will considerably reduce your insurance costs.

So if you think you are paying too much for car insurance, don’t just send that renewal form back next time – take some action to bring the costs down because if you don’t help yourself, no one else will.

Credit Card Balance Transfers: The Basics

Many banks offer the incentive of 0% (or very low) interest for a fixed period on balance transfers when customers take up a new credit card with them. In theory this enables customers to move credit card debt on which they pay a high level of interest to a card where they will, for a period at least, pay no interest. This can be an effective strategy to avoid paying interest for a time, but it is also one that will have to be ‘handled with care’ due to some very real risks associated with it.

One of the most important risks associated with balance transfers is the fact that it can, in many cases, not be sustained in the long run. This is because banks will often take a dim view of customers moving debt from card to card without making a serious attempt to reduce the debt itself. This means that customers who continually do credit transfers will often find it very difficult to do so after a while, meaning that they could be stuck with a rather unattractive credit card that they only chose because of the 0% transfer option.

In extreme cases excessive transferring activity could be passed on to credit rating agencies. This can wreak havoc on a customer’s credit rating, making access to other kinds of credit very difficult.

It is very important to make sure that you actively manage the card into which you made the transfer. The zero rate often comes with all kinds of terms and conditions attached. One of the most important of these is that any late payments will immediately trigger the regular APR.

Before making the decision to transfer your debt to new card it would be a very good idea to make sure just what the low rate that you are being offered applies to. In some cases it will only apply to the transferred balance itself and not to any subsequent purchases. It would obviously be better to find a deal that offers this rate on both the balance and on new purchases.

If the card that you made the transfer to offers different rates on the transfer amount and on subsequent purchases, you will have to keep in mind is that any payments that you make will, in most cases, first be applied to the portion of the debt that is subject to the zero rate. This means that you could end up paying ‘interest on interest’ on the new debt while servicing the transferred amount.

All of the above does not mean that you should avoid transfer arrangements at all costs. They can be very effective in helping you to reduce interest payments while you work on paying off your debts. It can also be a means to consolidate all your credit card debt in one place making its management, and eventual payment, much less complex. The bottom line is that it is a strategy that should be used with care and that should be actively managed, as a simple mistake (like missing a payment) or the lack of a complete understanding of what a particular offer entails, can cost you dearly.

Summary:

• Credit Card Balance Transfers allows you to transfer debt from one credit card to another at a lower rate.
• It is a strategy that should be used with care as it can be quite risky in the long run.
• It is best to find a deal that offers the low rate on both the transfer and on new purchases.
• It a strategy that should be actively managed with a definite purpose in mind.

Fast Facts about Payment Protection Insurance

Payment Protection Insurance (PPI) is a type of insurance that is often sold alongside a specific financial product (e.g. a loan, credit card or mortgage) as cover against the inability to make repayments in case you lose your income through an accident, a medical condition or unemployment. Policy terms vary but most policies will normally pay out a fixed benefit over a set period of time (e.g. three months, six months or up to twelve months).

You will normally be offered PPI as a matter of course whenever you take out a new credit card, loan or mortgage.

PPI can bring great peace of mind to those taking up significant financial commitments. However, great care should be taken to take out a policy that is just right for you in your specific circumstances. A first step towards doing this would be to not simply take up the policy offered by your financial institution straight away but to, instead, do a bit of homework first. This is even more important in light of the fact that there have been several instances in the past where PPI policies where mis-sold by unscrupulous lenders, leaving people with the impression that they were adequately covered when this was actually not the case. The following few points can help you to decide on the best PPI policy:

• Realise that you have options: Some lenders will make it sound as if it is compulsory that you get PPI and also that you have to get it from them. This is very rarely the case. If you do decide upon getting PPI you are well within your rights to get it as a ‘stand alone’ product from an insurance company of your choice.
• Determine the true cost: Some financial institutions ‘hide’ the cost of PPI by simply adding it to your repayment and not showing it as a separate amount on your statement. If this is the case you are most probably paying over the odds. Find out by asking to see a statement with the PPI costs separated out.
• Make sure that the cover is right for you. Some policies are very restrictive in their wording (e.g. Only covering those who are made redundant. This will obviously be quite useless in the case of those who are self employed.)
• Read the fine print: Some PPI policies have so many conditions and exclusions as to make them almost worthless. You can protect yourself from a very nasty surprise by making yourself aware of any possible exclusions before signing on the dotted line. Usually this would mean going through the ‘fine print’ of the policy document with a find toothed comb.

You may get the impression from the above that PPI is generally is not worth it. This is certainly not the case. A good PPI policy, tailored to your individual needs, can contribute a great deal to your peace of mind. It is just very important not to succumb to the ‘hard sell’ that often accompanies the marketing of these products and to instead make a choice on your own terms.

Summary:

• PPI policies offer protection against the inability to make repayments on certain financial products due to certain specified circumstances.
• PPI is not compulsory and it is possible to take it out as a ‘stand alone’ product
• Great care should be taken to make sure that the PPI policy that you choose is right for your specific circumstances.
• Some PPI policies are hugely expensive, it would therefore be worth your while to ‘shop around’ a bit.

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