How to save money on finance plans
If you have ever needed to buy something expensive, then you’ve no doubt come across finance plans before. Instead of paying for something upfront, you finance the purchase over the course of a few months or years.
Finance plans are great when you don’t want to, or can’t afford to, spend a lot of money in one go. However, they do have some drawbacks – usually in the form of interest rates.
What are interest rates?
Think of an interest rate as your fee for the finance. After all, finance plans are a form of borrowing money. In effect, you borrow money to afford your purchase, then pay it back over time.
Interest rates are a charge of the total amount you’ve borrowed and they are usually shown as a percentage. For example, you borrow £1000 with a 1% interest rate, meaning you’re charged an extra £10 on top of what you borrowed.
As you can see, the downside of this is that finance often costs more than what you’re buying, unless you’re lucky enough to get a 0% plan. Still, it is often the only option for a lot of people when making expensive purchases – my car is on a PCP finance plan where I put down a deposit and pay an agreed amount off each month. After 3 years I then hand the car back or pay the ‘balloon payment’ at the end. I always hand back and get a new one!
Take advantage of 0% APR
Whenever you’re presented with finance options, they will have an APR tagged onto them. This is the annual percentage rate, which is basically how much interest you pay along with other charges. The lower it is, the better!
Many places will offer 0% APR for a specific period, which means you have a chance to pay off the finance with no interest at all. You can’t get this for everything, but you should definitely be able to find interest free boilers, household items (I just purchased a TV on a 0% for three month plan). With no interest rates, you might be able to pay the whole debt off within the interest free period.
Compare your options
Be sure to always compare the different options out there. A finance plan is the same as men in your life – some are much better than others!! Just as you would compare your household bills to find the cheapest option, you need to do that for finance as well.
There are price comparison sites that work out which is cheapest for you, or you can do the calculations yourself by taking the loan amount and looking at the APR. Sometimes you can pay everything off with no interest, but other times this is impossible. In which case, comparing your options helps you keep the costs as low as possible.
In my opinion, finance is a great option for substantial purchases. If you do need to go down this route, then I hope this post has shone a light on interest rates and how you can save money.
*This is a collaborative post.