Different types of Car Financing
With more and more car financing options appearing on the market, it’s never been easier to secure yourself a deal and drive away with your new car pretty much instantly. That is, however, as long as you have an average and above credit score, although you can find yourself getting a deal even with a low credit score. Here are a few options that you may want to consider when not buying a car outright and advise on how to make sure that you are not tricked into a shoddy contract.
Dealers Financing
Personal Contract Purchase typically involves paying a deposit then low monthly instalments over a set period. If you have made a commitment to choose this financing option you are given a couple of options, at the end of set period, you can either pay a lump sum to purchase the car outright, return the vehicle or sell it privately to pay of the remainder. This is a perfect option for people who want to change their car frequently and is based around a ‘minimum guaranteed future value’ (MGFV) for the car. Bear in mind that it is very important to stick to the agreed mileage limits and to keep the car in good condition to avoid penalties.
Personal Leasing looks a lot like Personal Contract Purchase. However, even though you benefit from low monthly payments, you have no option to buy the car. You could approach it in house buying terms – mortgage is more desired than rent, however, car is much more disposable than a house, so it’s easy to change the car if you are essentially renting it, which is why many people would choose this option. Although, the problem with this option is that you normally must pay three months’ rental in advance, which can often prove to be difficult, depending on your financial state. A total monthly cost will be determined by the type of the car, length of contract and agreed mileage. Make sure that you keep in mind the APR and any administration fees that may be involved.
Hire Purchase is secured against the vehicle itself and just like in personal leasing option, you do not own the car, meaning that you cannot sell the vehicle on without the lender’s permission, however, you can return it. Once the final payment has been made you become a complete and rightful owner of the car. You are looking at a typical deposit coming up to around 10% and then repaying the balance in instalments (plus interest) over the agreed loan period. If you miss a payment the car may be repossessed, this option can always prove to be more expensive than an independent bank loan.
Independent Financing
Personal Loan allows you to borrow the amount you need for the car straight up, then simply pay it back to your bank or other lender. Even though the APR may be higher this way, you will not have to put down a deposit toward the vehicle, you would also have the freedom of spreading the loan over a period of time that is convenient to you. The best of all reason to go for this payment option is that you would own the car from the onset. What you should keep in mind are a few negatives that come along with this payment option, like possibility of a penalty if you decided to settle the loan early. Not everyone is able to receive a personal loan due to bad credit rating, so before you choose this option, make sure that you are aware of your score.
Credit Card payment is another option if you wanted to stay in control of your finance. However, your ability to purchase a car will be determined by your credit limit. Bear in mind the APR too, this can be extremely high for some credit cards and do not assume that every car dealership will accept a credit card payment.
Borrowing more on your existing mortgage is another option to look at when buying a car. Interest rates on mortgages are low and repayments will simply be added to your existing monthly repayment plan. If you do, however, struggle with repayments you might find yourself in an uncomfortable position with your home being put at risk.
How to secure yourself a best deal possible?
Before buying a car, have a serious look at your present financial state, try to calculate all your income and outgoings, as well as savings and just what amount you are left with at the end of that. What you are left with should give you a rough idea of what price car you can afford.
Be observant, when receiving a quote make sure that you have a read over all the presented documents before signing anything. Do not feel pressured to go for a deal that you are told ‘is the best one on the market’ by a car dealer, a car dealer will often tell you things just to make you buy a car. A good idea would be to visit a few different dealerships, so you could compare deals and choose one that is most convenient for you.
Bear in mind that even when you think that you have been offered a good deal, there is always an opportunity to haggle, you could be surprised by how much you could save if you decide to brave up and fight for lower APR!