Car loans make a mountain out of debt
Tina Johnson desperately wanted to own a car and was thrilled to bits when she obtained finance for a £7000 Rover but this sum turned into £21,500 worth of debt before she had even driven it away.
Tina was unable to take out a standard loan as her credit record had been damaged by an old catalogue debt so her car dealer referred her to a finance company specialising in loans for people with adverse credit ratings.
The finance company informed Tina that she would have to take out payment protection insurance, guaranteed asset protection and a warranty for her car.
These three additional costs along with a whopping 42.5% interest rate elevated the five year loan. The price of the car was £7,080 but £3,228 was added to this figure in payment protection insurance.
It was these add-ons, coupled with the 42.5% interest rate that pushed the cost of the 62 month finance package to an enormous £21,540.
Several months after purchasing her car, it was involved in an accident and considered a ‘write off’. Tina recouped the value of her car through her insurance but the guaranteed asset insurance did not cover the amount of money that she owed to her lenders who were still demanding £13,500 for payment protection insurance and the credit agreement.
Anyone who is considering taking out a car loan should check exactly what they are being charged for to avoid driving into debt. Don't end up paying more in interest than what your car is worth, as you could find yourself seeking an IVA or Debt Management Plan once the repayments start getting to hard to keep up with.
