When it comes to buying a
new car, it’s worth doing your research. It will probably be the second most
expensive thing you’ll ever spend your hard-earned cash on - the first being
your home, of course. There are different ways to finance a new car, and each
one offers a slightly different deal. We’ll discuss of few of the most common
methods of financing a car below.
Using your savings
If interest rates are low, then your savings won’t be earning much anyway. Rather than just keeping them in your bank or building a society account, it can be a good idea to use some of the money to fund the cost of your new car. This means you can take out a smaller personal loan, or make fewer or cheaper repayments. However, make sure you leave enough of your savings in case of an emergency, or if you just need money that’s readily accessible. Even if you do use your savings, it may still be worth purchasing the car on your credit card to ensure you benefit from credit card purchase protection. Just make you pay the bill off the next month!
Taking out a personal loan
If you can’t afford the
price of the car, then you can get a personal loan from a bank, building society,
or a finance provider. Do not secure the loan against your home; it’s not worth
risking your home if you find later down the line you cannot meet the
repayments. The APR – Annual Percentage Rate – will differ for each provider,
so shop around for the best possible interest rate you can find. You may find
it difficult to get a personal loan if your credit rating is poor, but there
are specialist dealerships specializing in guaranteed
car finance, who will be much more likely to provide you with car credit,
even if you have a poor credit history.
Hire Purchase
Hire purchase is a car finance package arranged by the car dealer, and can be extremely competitive for buying a new car. The car is paid for in installments over a 12-60 month period, although most dealers require a 10% deposit prior to offering a hire purchase. The loan is secured against the car, which means you won’t actually own the car until you’ve finished paying your installments. It’s an easy method of car finance to arrange, and repayment terms are normally very flexible. It can work out more expensive if you’re looking for a short-term hire purchase but works out as good value if you’re willing to wait to own the car.
Leasing Agreement
Like a hire purchase, in a leasing agreement you pay the dealer a fixed monthly figure to use the car. Servicing and maintenance of the vehicle are included in the amount, so long as you don’t exceed a specified mileage limit. However, unlike hire purchasing, at the end of the agreement, you return the car to the dealer, and never claim ownership of the vehicle. Again, payment terms are normally very flexible but will be higher than hire purchases because of the inclusion of service and maintenance.
When you come to buy a new car - regardless of whether you pay with one lump sum or in monthly installments - always make sure you can actually afford it. Compare interest rates and the total cost of borrowing over however long the time period of repayments will be, and do not feel compelled to take out various extras (such as PPI insurance). Research what the extras really entail before agreeing to any additional payments. Don’t enter into a financing deal lightly; shop around and find a deal that best suits you.
Financing a new car can be a significant financial commitment, so it's important to approach it thoughtfully. Here are some tips to help you finance a new car:
Determine your budget:
Before you start shopping for a new car, determine how much you can afford to spend. Consider your monthly income, expenses, and other financial obligations to establish a budget for your car purchase.
Research your options:
Research different car models, features, and prices to find a car that meets your needs and budget. Look for deals, incentives, and financing options that may be available from dealerships or lenders.
Consider financing options:
There are various financing options available for a new car, including dealership financing, bank loans, and credit unions. Compare interest rates, loan terms, and fees to find the best financing option for your situation.
Make a down payment:
Making a down payment can help lower your monthly payments and reduce the overall cost of the car. Consider saving up for a down payment before making your purchase.
Negotiate the price:
Negotiate the price of the car to ensure that you're getting a fair deal. Be prepared to walk away if the price isn't right.
Read the contract carefully:
Read the financing contract carefully before signing it. Ensure that you understand the terms and conditions of the loan, including interest rates, fees, and payment schedules.
Maintain good credit:
Maintaining good credit can help you qualify for lower interest rates and better financing options. Make sure to pay your bills on time and avoid taking on too much debt.
By following these tips, you can finance a new car while minimizing your financial risk and ensuring that you're getting a fair deal. Consider speaking to a financial advisor or loan officer for additional guidance on financing a new car.
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