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Car Finance

For many people, buying a car is the second most expensive purchase they will make, after their home. Whether this is the case or not, it is always important to make sure that you get the best deal when buying a car. Due to the broad range of financing options available, this shouldn't be too difficult, providing you shop around enough to source the best deals. Research shows that people spend hardly any time choosing the financing arrangement for the purchase of their car, in comparison to the amount of time they spend on choosing the actual car. As a result, many people opt for the first financing arrangement they are offered by the dealership, which may not always be the cheapest way of buying the car.

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Using a hire purchase agreement
The simplest way of purchasing a new car is by paying the cash up-front. As this option is an unlikely prospect for most people, it is important to consider the various forms of financing arrangements which are available. A Hire Purchase agreement is one of the most common ways that people purchase new cars. If you opt to go down this route, you will pay fixed monthly instalments, with interest, to the car dealership or finance company. A Hire Purchase agreement often requires you to pay a deposit of around 10% of the value of the car at the beginning of the contract. The repayment terms for Hire Purchase agreements can range from between 12 and 60 months. The APR will be set at the start of the agreement and will remain the same throughout. Although the rates offered by car dealerships and manufacturers can often be highly competitive and reasonable, there are some important things to consider with Hire Purchase agreements. Due to the nature of the agreement, you don't own the car until you have paid off all the instalments in full. At the end of the repayment period, you will be given the opportunity to purchase the car outright, by paying the 'option to purchase' fee. As the car dealership or finance company remain the legal owner of the car, you are not allowed to modify or sell the car during the repayment period. In addition, as the loan is secured against the car, there is a chance that your car may be repossessed, should you fail to keep up with the payments. In this instance, you would lose both the car and the money which you had paid up until the repossession. A conditional sale is the same as a Hire Purchase agreement aside from one key difference. When purchasing your car in this way, you automatically become the owner of the car following the repayment of all the monthly instalments.
Use a personal loan
Another popular way in which people purchase new cars is through taking out a personal loan from a bank or financial organisation. The interest rate you are offered will depend entirely on your credit history. However, for people with a good credit score, this can often be the best way of purchasing a new car. If you fund the purchase of a new car with a personal loan, you become the legal owner of the car as soon as you pay the car dealership. As a result, you can modify the car as you please. In addition, you can also sell the car during the repayment period, which can be especially useful if you are struggling to keep up with your payments. Personal loans are often unsecured and have to be paid off in fixed monthly instalments. The length of the repayment period will vary from loan to loan, however you will often have a degree of choice regarding the length of the repayment period.
Use a personal contract
A Personal Contract Purchase (PCP) is a slightly more flexible variant of a Hire Purchase agreement. A PCP is a form of long-term rental, where you agree with the dealership on the amount you will use the car, both in terms of mileage and time. A PCP will often require you to pay a deposit of 10% and to pay fixed monthly instalments, which will allow you to use the car for an agreed amount of time. Following the end of this period, there is a degree of flexibility. You can keep the car, hand it back or upgrade. Should you wish to keep the car, you will need to pay a lump sum which will have been deferred from your monthly payments. Due to the size of this fee, the monthly payments for a PCP can be substantially cheaper than the monthly payments for a Hire Purchase agreement. It is important to remember that there will be excess charges if you exceed the agreed mileage or damage the car in anyway. Due to the vast amount of choice, in terms of both financing options and providers, it is crucial that you shop around when deciding how to purchase your new car, in order to ensure that you get the best and most appropriate deal. When buying a used car, it is also important to check that it is not subject to outstanding finance and thus owned by a dealership or finance company.

Loan Advice

If you’re having trouble working out exactly what kind of loan you need, then browse through our guides and we’ll tell you all you need to know.

Loans come in a wide range of shapes and sizes, from secured to unsecured; short term to long term. Picking the right one can be hard, but don’t worry, we’ve got all the information you need to so you can get borrowing in the right way, right away.

 

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MoneyExpert does not give advice on or recommend any particular insurance product or service or whether it is suitable for your personal circumstances. The information provided is to help you to make your own choice about how to proceed