Drivers hit with £1,000 of unexpected car finance fees
Around 2.5 million people spent a total of £37.6bn on car finance last year, spending an average of £15,500 each.
But drivers could be hit with bigger bills if they’re faced with additional upfront and end of contract charges they hadn’t budgeted for.
Insurer Admiral reviewed dealership finance agreements and charges when returning a vehicle at the end of the contract.
It found that some garages charge buyers an administration fee covering provision of documentation and vehicle provision. The average fee was £169 with the highest standing at £199.
Drivers could also be caught out by excess mileage charges (average of 9.5p per mile) which could add £286 on average for driving an extra 3,000 miles in a four-year period. Drivers need to be clued up on how many miles they cover and Admiral suggests adding a contingency mileage to avoid unexpected costs.
Other costs include a penalty to pay off a finance agreement early and if they exercise their right to ‘voluntary terminate’ there could also be costs to pay. Voluntary termination can only be done once 50% or more of the amount owed has been paid. Where they haven’t paid half of the amount owed, drivers will also need to pay the difference.
With plans that require drivers to return the vehicle, any large scratches, scuffs and stains outside of fair wear and tear will likely result in a charge.
As well as shock costs at the end of a contract, drivers may be charged for using third party finance, though they may be able to save by shopping around for finance before heading to the garage.
Admiral compared deals from 10 different providers and found the average APR was 11.8%, higher than its 7.9% offering. By shopping around, drivers could save an average £736.
But with some garages setting third party charges where customers don’t take out one of their partnered finance deals, this could add £365 to bills.
‘Research is key’
Scott Cargill, CEO of Admiral financial services, said: “Purchasing a car on finance is a popular option for many drivers as it allows them to drive a new or nearly new car and spread the costs over monthly payments rather than having to pay in one go.
Where consumers could lose out substantially is if they are hit with additional charges that they simply haven’t budgeted for.
“We urge people to shop around before signing up to any financial agreement, as they would for any large purchase, to ensure they’re aware of any restrictions on mileage and car condition charges upfront. Saving a small portion of their budget to cover any additional costs at the end of their contract could also help make sure there are no nasty surprises.
“Research is key when it comes to car finance and making sure you’re not only aware of charges but also understand them before you sign on the dotted line could save you a lot of money in the long run.”
Top tips when buying a car on finance
Admiral lists the following tips to help buyers with a new car purchase:
1) Know what you’re signing up for. Admiral research revealed Brits are confused by industry jargon with 68% unable to identify HP as meaning Hire Purchase. If you’re unsure of what the different finance types are, research them before you head to the garage.
2) Stick to your budget. Work out what you can afford to spend monthly, but don’t forget to factor in costs like car insurance, fuel, road tax, MOTs and servicing – that way you won’t be caught out with unexpected costs.
3) Work out your expected mileage. Think about how far you usually drive in a year and be realistic. Make sure the deal you are signing up for will cover you, paying for excess mileage afterwards will be significantly more expensive.
4) Ask plenty of questions. Ask about additional charges, what they’re for and how much they are upfront if you don’t understand them. The more informed you are before you take out an agreement, the less likely you are to be stung by unexpected charges.
5) Shop around. It might seem time saving to sign up to an agreement straight away but shopping around could save you a considerable amount of money.