Buying a car is a big decision, and you will want to think it through carefully with all the information and guidance you can find. Investing in a new vehicle is one of the biggest purchases you’re ever going to make, so it’s important to take your time and weigh up all of your options. If you’re not sure what the best option is for financing your purchase, take a look at my quick overview of finance choices when it comes to buying a car:
Interest rates are currently low, so any ISAs or savings accounts you have won’t be earning a huge amount. It makes more sense to use any saving you currently have, rather than taking out a loan where the interest repayment amount will be a lot higher.
If your savings don’t cover the full cost of the car, then use them to pay a large deposit as this means you will have to pay back less money overall.
One of the most popular options for financing a car purchase is taking out a personal loan from your bank, building society or other lender. The main advantage to this is that you own the car outright, but be aware that if you default on your payments, any of your assets can be seized, not just the car.
Compare loan choices carefully to make sure you’re getting the best deal, and try to spread the payments over the shortest time possible. The longer you take to pay back the money, the more interest you will pay.
A personal loan is great if you plan to keep the car for a while and haven’t got the deposit needed for a finance deal.
Hire purchase (HP)
With hire purchase agreements, there’s an initial deposit payment, followed by monthly instalments. The car is not owned by you, it’s the property of the HP company. If you default on payments, the HP company can seize your car and charge you for any outstanding debt, along with early settlement fees.
The advantage of this option is that you can pay back the money long term with reasonable monthly installments, and that you’re not risking other assets, only the car.
Personal Contract Plan (PCP)
This option is similar to HP, with a small deposit, low monthly payment amounts and a flexible terms, from 12 to 36 months. The main difference from HP is that when you get to your last payment, you have more options available. You can choose to keep the car, return it, or trade it in for a replacement.
If you’ve stayed within a strict mileage allowance and the car is in good condition, then returning the vehicle is won’t cost anything. If, however, it’s in bad condition and you have exceeded the mileage limit, you will have to pay an agreed excess amount.
If you choose to keep the car you will need to pay a final “balloon payment”, which is the car’s guaranteed future value (GFV). This is based on several things; the predicted mileage, length of the loan and the car’s estimated retail value.
If you choose to trade in the car, any GFV equity can be used against the value of the new vehicle.
This option is great if you need a flexible outcome to your leasing, but make sure that you stick to your agreed mileage limits.
If you’re happy to lease a car that will never belong to you, then this option gives you transport to get from A to B, without the stress of maintenance and breakdown bills. The monthly payments are higher that the other options as they include all servicing and maintenance costs. Payment terms are flexible and and you don’t need to worry about the car depreciating in value.
Remember to research your options thoroughly before deciding on a finance deal and shop around for the best deals available. Also, take the time to find the perfect car for your needs. There’s a huge selection of vehicles available online, but make sure that you choose a reputable company such as Jardine Motors, who sell a great selection of approved used vehicles.