For most people, choosing a car is a slow, well-thought-out process – and choosing a car loan should be much the same. However, many people simply go with whatever finance deal they are offered at the showroom, even though there may be much better car loans on the market. By planning well and choosing the right loan, you can save yourself a lot of money in the long run.

Here are some tips for choosing the right car loan.

Make a plan
Plan how much you want to borrow, and for how long. Don’t be tempted to get a bigger car loan for a more expensive vehicle unless you’re sure you can afford it.

Plan your car loan in terms of monthly payments. You need to be sure that your payments are affordable and that you will still be able to afford them if your other costs of living rise. If your car loan payments are going to leave you with very little disposable income, you should probably play it safe and find a cheaper alternative.

Shop around for the best car loan
Taking your time and looking at what’s available in the market could well find you a deal with a lower interest rate, which can save you a lot of money. The interest rate you are offered will vary depending on your credit rating, but anyone can save money by taking their time and finding the best deal.

Check the total repayment figure
The interest rate of your car loan and the length of the repayment term will both affect how much you pay in the long run. If you can’t find a lower interest rate, is there any way you could repay the car loan more quickly? It might be worth making a few short-term sacrifices if it saves you hundreds of pounds in interest.

Once you’ve done the calculations, take a good look at that overall figure. If that £2,000 car is going to cost you £3,000, do you really need it that much? Would it make more sense to save £2,000 – and then buy a similar car for £2,000?

Protect yourself
It’s impossible to predict what could happen in the next few years – even if you’re sure your car loan payments are affordable, redundancy or a personal injury could seriously damage your ability to keep up with repayments.

So it often makes sense to consider Payment Protection Insurance (PPI) on your car loan. If at any point you find yourself unable to make payments due to circumstances outside your control, your car loan payments could be made by the insurance company for a pre-agreed period of time.

You could also look into gap insurance, which could – should you have an accident – cover the shortfall between the market value you receive from your (standard) motor insurance claim and the greater amount due under your loan agreement.

Why choose debt management? Some debt solutions seem to offer a lot more for a lot less, so why would anyone select a solution that doesn’t promise an easy way out?

With debt, as with anything else, if it sounds too good to be true, it probably is. There is no ‘easy way’ out of debt. Debt is a real problem and as such deserves a realistic solution. If someone owes money, their lenders are going to do their best to recover it. Wouldn’t you?

Why do lenders agree to debt management?

The best way of recovering a debt varies from case to case. In their line of business, lenders will understand that there’s a limit to how fast someone can repay their debt, and that this limit is different for every person.

So lenders tend to be prepared to renegotiate repayment terms when this is clearly the best way forward. They will, however, expect a certain degree of cooperation, organisation and effort from borrowers in return. This is where debt management comes in.

Debt management – what the company does

Lower monthly repayments. Frozen interest. Waived charges. In general, these are the three main financial benefits a debt management company will try to negotiate on behalf of their client. There’s no guarantee they’ll succeed, but it may be fair to assume an experienced debt management professional stands a better chance than the average borrower.

After all, a debt management expert will know what kind of terms most lenders will agree to in specific situations. They’ll be able to help their client draw up a budget that shows their income and outgoings, so they can provide lenders with tangible, credible facts and figures. Furthermore, a debt management company should be able to propose repayment plans that strike borrower and lender alike as fair and realistic.

Aside from the practical advantages, such as the (hopefully) higher chance of success, there’s also the emotional benefit of working with a debt management company: borrowers can be embarrassed, confused or even angry about their debts, and can find it very hard even to talk to their lenders, let alone come to an agreement with them.

Debt management – what the borrower does

Make no mistake. Debt management is not an ‘easy option’ for borrowers. If they’re to agree to new repayment terms, lenders will expect the borrower to cut back on all non-essential spending to maximise their repayments. And once those new terms have been agreed, lenders may be prepared to renegotiate, but only in cases of genuine financial hardship – if they feel the borrower simply isn’t living up to their side of the agreement, they may feel they have to pursue other action, which could be anything from contacting the county court to trying to make the borrower bankrupt.

As long as the borrower sticks to the agreements, however, a debt management plan can be an excellent way out of debt. Potential lenders in the future will see that they’ve had problems making debt repayments, but that they’ve tackled those problems head-on, entering a debt management plan that helped them repay those debts at a sensible, affordable rate.

This article was originally written by M Taylor of Gregory Pennington. Visit www.gregorypennington.com to learn more about debt management, consolidation & IVAs.

If you have debts of around £15,000 (or higher) that you are unable to repay, an IVA (Individual Voluntary Arrangement) is a Government-backed debt solution that could help you get back in the clear by writing off a substantial amount of your debt. As part of the Insolvency Act (1986), it’s a legally binding means of getting out of debt that helped over 40,000 people per year in both 2006 and 2007.

An IVA proposal can only be put forward by a licensed Insolvency Practitioner. If the IVA is approved, you will pay a set monthly amount towards your IVA, usually for 5 years – after which your debt will be considered settled.

Before entering an IVA, your circumstances will be thoroughly reviewed to determine how much you are able to pay each month once living expenses have been taken into account. Creditors are likely to accept an IVA if they can see that a) you are not able to repay the full amount, and b) they will get more from your IVA then they would by petitioning for your bankruptcy.

How does an IVA work?

1) Firstly, you will speak to a debt adviser about your situation. If they think an IVA is your best option, they will work with you to draw up a proposal, telling your creditors how much they would receive if the IVA goes ahead.

2) The proposal is then submitted to your creditors for approval. A Creditors’ Meeting will be planned to give your creditors a chance to discuss the terms.

3) The Creditors’ Meeting invites your creditors to get together and vote on whether to approve your IVA proposal. For the IVA to go ahead, those who vote in favour of the proposal must collectively own more than 75% of your total debts.

If any of your creditors do not respond to the proposal, it is automatically considered a vote in favour of the IVA.

4) If approved, the IVA begins and you will pay a fixed amount each month, which will be divided between your creditors. This will usually take place over 5 years. Your creditors are legally required to stop charging interest and may no longer pursue any kind of legal action, unless the terms of the IVA are broken.

5) If you are a homeowner, you will probably have to free up the majority of the equity in your home in the 4th year of your IVA, and this will also be divided between your creditors.

6) If you successfully keep up payments for 5 years, the IVA is complete and you are legally debt-free. However, it may take up to a year afterwards for the IVA to disappear from your credit history.

Learn more about IVAs at DebtAdvisersDirect.co.uk >>

There’s nothing wrong with debt in itself. Without debts such as mortgages and car loans, we wouldn’t be able to live our lives the way we want. But once we can’t afford our debt repayments, it’s time to ask for help, seeking expert debt advice or looking into professional debt solutions such as a debt management plan, debt consolidation loan / mortgage, IVA (Individual Voluntary Arrangement) or Trust Deed. The alternative could be doing something we’d normally never consider – like paying the mortgage (or other large debt) with a credit card.

According to housing and homelessness charity Shelter, about 85% of the UK’s £1.4 trillion personal debt is secured against property. The good thing with secured debts, of course, is that they normally come with a lower APR (Annual Percentage Rate) than unsecured debts. Nonetheless, a mortgage is by far the biggest debt most people will ever have. It’s a commitment to spend a long time paying a lot of money every month. If the mortgagor runs into any kind of financial trouble, it can be a huge burden.

Here’s the scary part. In October last year, Shelter revealed that over a million people had been forced to pay their mortgage or rent with a credit card in the previous 12 months. Just eight months later, that number had quadrupled – published in June 2008, Shelter’s ‘Breaking point’ report revealed that ‘4.1 million households (16%) used credit cards to help meet their housing costs in the last 12 months’.

Credit cards may seem like a good way to deal with a cash shortfall in the short term, but they’re no long-term debt solution. “When someone pays a month’s mortgage or rent with their credit card, they’re not solving their debt problems – they’re just putting them off,” says a spokesperson for financial solutions company Think Money. “They’ll have to repay that debt sooner or later, and the longer they leave it sitting on their credit card, the more they’ll end up paying in interest.”

What’s more, any inability to pay essential bills like rent or mortgage could mean there’s something seriously wrong with their financial situation in general. “Anyone in this situation should immediately review their financial situation and figure out where the problem lies. It could be that they can’t really afford the mortgage / rent payments, or it could be that their other debts and expenses are simply taking up too much of their income. Unless they’re certain that it’s a short-term problem (caused by a one-off expense, perhaps) it’s essential they take action to regain control of their finances.”

The important thing is to act swiftly, but not panic and grab the first debt ’solution’ that comes to mind, like using a credit card for this kind of debt payment. “Financial solutions companies like Think Money can help people find a much better answer to their debt problems. A debt management plan, IVA or Trust Deed could be a good way to reduce their monthly payments and regain control of their finances, but everyone’s situation is different, so it’s vital to seek debt advice from a company that offers a wide range of debt solutions.”

When a homeowner faces the threat of repossession, finding a way to make those monthly mortgage payments jumps to the top of their priorities list. Their first port of call should really be their mortgage lender, who may let them reduce or reschedule their payments until they can get their finances under control again.

There are, however, other places they can turn to. Often, people can’t pay their priority bills (such as their mortgage) because their non-priority bills (credit cards, personal loans, overdrafts, etc.) simply take up too much of their monthly income. In cases like this, they may have a wide range of debt solutions available to them, from debt consolidation to IVAs (Individual Voluntary Arrangements).

Helping them reorganise their non-priority payments, these debt solutions can free up the money they need for their mortgage payments. Different debt solutions are right for different people, so they should start by seeking debt advice from a professional debt specialist, who can help them decide which debt solution (if any) is right for them.

Debt consolidation
A debt consolidation loan may be a simple idea, but it can really help people with multiple debts. If they take out one new loan that’s big enough to pay off all their unsecured high-interest debts, they’ll have just one repayment to make per month, rather than many. This can greatly simplify their finances as well as reducing the interest they’re paying on their debt.

A debt consolidation loan can be an effective way for someone to reduce the amount they have to pay every month, as they can arrange to repay the consolidation loan more slowly than the original debts, although this could well mean they end up paying more in total.

Learn more about debt consolidation: www.thinkmoney.com/debt/debt-consolidation.asp

Depending on their situation, they might consider consolidating their debts by remortgaging – taking out a larger mortgage and using the cash to pay off their unsecured debts. Even if this increases their mortgage payments, it can still reduce their overall monthly expenditure, as they won’t have to make any payments to other debts. Of course, it’s always important to think carefully before securing any debt against property.

But debt consolidation isn’t always the best way forward, and some people may be better off with an alternative debt solution, such as a debt management plan – or an IVA.

IVA (Individual Voluntary Arrangement)
For homeowners with significant debts (over £15,000, in most cases), an IVA could be a good way of reducing their monthly payments, freeing up cash for mortgage payments and writing off a portion of their debt. Normally lasting five years, an IVA is a legally binding agreement between an individual and their unsecured creditors:

· The individual agrees to make regular fixed payments throughout the IVA – basically, the maximum they can afford once they’ve taken their living expenses into account. They may also have to free up some equity in their home towards the end of the IVA, so they can pay their creditors more of what they’re owed.

· If enough of the creditors accept the terms, they’ll agree to write off any outstanding debt once the IVA has been successfully concluded. They also agree not to take any (further) legal action, as long as the individual keeps making the payments.

An IVA is only an option if the individual genuinely can’t make their normal payments to their unsecured creditors – but can commit to making those reduced payments for the duration of the IVA.