Car finance calculator, vehicle finance calculator
It’s possibly the biggest financial mistake people make – but many of us will go to our graves not knowing the difference between capital (or principal) and interest. And it’s a killer, because it WILL be the difference between your wealth growing, or money passing through your hands like sand. To illustrate the importance, and how it all works, I’m using a car finance calculator/vehicle finance calculator, the sort of handy little Web 2.0 tool you’ll find scattered all around the internet for aspiring tightwads like us to use for free. This calculator comes from the excellent carfinance.co.uks, which also has some very useful tips on getting the best deals, so thanks to them.
I’m buying a secondhand Renault Clio (only the best of course) for £5000. But I don’t HAVE £5000, because I’m hopeless at saving so I opt for the ‘affordable monthly credit’ and – even more convenient – the guys who are selling me the car can arrange the credit too. I notice that credit is ‘typically’ around 8.9%, which doesn’t scare me too much. They do a quick credit check on me, and it turns out that in fact my credit score is not so great, so they flip me to another loan provider. Up to 9.9%. Not so great, but still not bad, and as I’ve invested this much time at the car dealership I don’t want to walk away now … especially as my shiny new car, with a year’s free tax thrown in, is sitting beguilingly on the forecourt. But hey, I’d better check how much this finance is costing me a month … I’m not a complete financial muppet. Over a period of five years, I’m paying just £91.58 a month. This is easy.
I sign, I get the keys, I drive away. I get home. I look at the credit agreement, and realise the total sum I’ll be repaying is £5495 – convenience and the illusion of painless repayment means I’m paying 10% over the odds for the car. Using a car finance calculator first will show you the various options – whether you should repay over a shorter period, try to find cheaper credit, or simply not take credit at all – but bite the bullet and pay cash.
The good things about a fixed repayment loan like this is that you know exactly what the total repayment sum is (you’d be repaying the £5495 whether you took the loan over three or five years, you’d simply pay a different amount each month), and that the sum you owe isn’t compounding (so additional interest isn’t being lashed onto the principal each month). The really BAD thing is that you’re paying for finance when you can invariably negotiate an interest-free deal – trust us, they want to sell the car that much – and you’re paying a premium on a depreciating asset. By the end of the term your five grand car will be worth a few hundred pounds. So think before you sign.