Not many of us can afford to buy a car outright and one way or another we’ll go down the finance route; the only problem is that there isn’t just one direction to take when doing finance for a car and you have to weigh up your circumstances in order to decide which way you go.
To the uninitiated, car finance might seem daunting, but with the right knowledge you can go into any dealership and be confident about what you want to get out of car ownership and how you want to pay for it. Everyone has different needs from a car; you may want it as a simple run about or to use for business.
There are four main methods of paying for a car: loan, lease, hire purchase and dealer finance.
Getting a personal loan to pay for your car is the most popular option these days, as it can be done with relative ease. This method is good for those that don’t have a deposit, want to full ownership and plan to keep hold of it for a while.
The best benefit for using this method is that you get full ownership of the car immediately and if you’ve been with a bank for a lengthy time they should be happy to facilitate your needs, although you may find cheaper alternatives
The APR rate is where you will want to research the most when considering this option, with the lowest number being the best. Most companies will mention their standard interest rate, but this could change depending on your credit history.
Paying back the loan will differ on the length of time you want to pay it back, with smaller monthly repayments for those that go with longer deals, but they come with higher interest fees, so try to keep the loan deal as short as you possibly can.
Going ahead with hire purchase (HP) is good for those who want to own their car eventually, like to have fixed monthly repayments and would like low-risk credit secured against the car only. With this option you will require a deposit (normally 10 per cent) which is then followed by a set number of monthly payments that differ depending on how long the deal will last, and finally, there is an option to make a purchase fee to own the car outright.
If you don’t make that final payment ownership of the car is not complete and the driver has no right to sell the car and there are many other circumstances that can the transaction slightly awkward.
Personal contract hire
This method of purchasing a car is for those that really don’t want to be affected by the depreciation of their car and are not looking to take ownership at any point, as well as wanting the freedom to change cars frequently. Some people may know this as persona leasing and the whole idea is to make slightly higher monthly payments than the other options, but obviously as you’re hiring the car, you’ll never actually own it.
The deal will usually last about two or maybe three years and you’ll have a certain yearly mileage to stick to otherwise extra charges will be added. As a result, you have to make sure you keep a keen eye on the condition of the vehicle, otherwise a fee will be incurred, but repair bills can be implemented into the deal if damage is suffered.
This is an option that is taken up by those who aren’t looking to perform much research and are happy to just go with whatever the dealer says, although looking for the best dealer prices is advised. Benefits of this method are few, but it does allow you to get package deals that might include free finance, 0% APR or three years’ worth of servicing.
The full repayable amount is where you want to be looking when comparing deals, not particularly monthly payments, and then compare these to what you can get on the open market.