Tuesday, November 19, 2013

Financing a New Car

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 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 specialising 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 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 short term hire purchase, but works out good value if you’re willing to wait to own the car.

Leasing Agreement

Like hire purchase, in a leasing agreement you pay the dealer a fixed monthly figure to use the car. Servicing and maintenance of the vehicle is 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 purchase 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 how ever 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.

Do you have have any questions or suggestions? Write in comment section.

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