Popular Car Financing Options
Explained |
By Paula Marriss |
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On the forecourt the car of your dreams is gleaming radiantly in the
mid afternoon sun, but right now that is not your main priority.
What you need to work out first is how you're going to be driving it
without paying so much on finance that you won't be able to buy the
fuel!
It's tempting when buying a new car just to take the
first finance option available that you can afford, rather than
looking around for a deal that best suits your needs, but it's well
worth the effort to make sure you get the right car finance for you.
There are a number of options to look at when buying a car and which
one you choose is very much dependent on your personal
circumstances, what you can afford to pay up front, how long you
want to be paying back the loan, and what other assets you have.
In this article we're going to be looking at a few of the most
popular options for car financing and exploring the relative
benefits of each so, if you're sitting comfortably, lets test drive
a few options.
An Independent Loan
With this
option you obtain the money for the car from an independent source
(banks, building societies, finance companies, etc.) which
essentially makes you a cash buyer as far as the car dealer is
concerned.
On the plus side being a cash buyer allows you
more room to negotiate with dealers for discounts and extras as you
both know how easy it is for you to take your business elsewhere.
The added flexibility of being able to buy from anywhere also opens
up a new range of possibilities for where you can buy the car.
On the negative side such independent loans are often a lot harder
to get than other forms of finance and usually rely on you being a
homeowner. You can get both secured and unsecured loans for this
purpose and while secured loans are cheaper you might have to put
your house up as security.
A Hire Purchase Agreement
With this option you pay a deposit and then a fixed amount for a set
number of monthly instalments. On completion you own the car. Hire
purchase agreements are usually only available on new cars.
On the plus side hire purchase agreements are pretty straight
forward to understand and the interest rates can often be cheaper
than alternative forms of finance.
On the negative side the
car remains the lenders property until the agreement ends (when you
pay the final instalment), so you can't sell the car before then
without obtaining their permission to do so. Also, should you fall
behind by as little as 2 payments the lender can repossess the car,
sell it off and sue you for any outstanding balance.
A
Personal Contract Purchase
With this option you pay a
deposit, a fixed amount of lower monthly instalments (up to about 3
years), then a final payment. At the end of the agreement you can
either keep the car, hand it back or part exchange it against
another one.
On the plus side this type of financing allows
you a convenient way of replacing your car every 2 or 3 years. It
also allows you to have cheaper monthly payments than other forms of
financing.
On the negative side this is one of the most
expensive forms of financing a car. As with a hire purchase
agreement, you don't own the car until the agreement is over and if
you need to get out of the agreement early there can be penalties.
Also these agreements generally have mileage restrictions too so if
you do more miles than agreed there can be further penalty charges
made.
So there you have it, the 3 most popular car financing
options explained. As you can see they all have their individual
benefits and pitfalls and the one that's right for you is down to
your own circumstances. Whichever way to you decide to go, at least
you're now a little more informed about the options. |
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