What’s the Best Way to Finance Buying a Car?
Buying a car is no simple decision. From buying outright, to buying a car on finance, there are many options. You also have to consider running costs. In fact, it’s probably the second most expensive thing you’ll buy after a home. So it’s important to make sure you get the best deal on financing.
•Cash
or savings? •Personal loan •Hire purchase (HP) •Personal contract plan •Personal leasing •Car finance options - Things to look out for •Shop around •Helpful information •Your next step
Cash or Savings? When interest rates are so low, it’s likely that your savings will not be earning much in a bank or building society account. So rather than keeping your savings and borrowing at a higher rate of interest, you could use them to fund all or some of the cost of the car.
Remember:
You should make sure you have enough savings left over for an emergency after you have paid for your car
If you don’t have enough savings to buy the car outright, you could use them to give you the biggest deposit possible
Even if you use money from your savings you may be better off buying the car on your credit card so you benefit from credit card purchase protection. You should pay the bill off in full the next month.
Personal Loan ď ˝
You can get a personal loan from a bank, building society or finance provider so long as your credit rating is good.
ď ˝
Make sure the loan is not secured against your home. Otherwise you will be putting your home at risk if you failed to keep up with repayments.
ď ˝
Shop around for the best interest rate by comparing the APR (or annual percentage rate, which includes charges you have to pay as well as the interest).
Pros It can be arranged over the phone, internet or face-to-face Covers the whole cost of the car but it doesn’t have to Can charge a competitive fixed interest rate if you shop around
Cons There may be a wait for the funds to appear, although some lenders make funds available almost immediately Other borrowing may be affected
Hire Purchase (HP) Hire purchase is a form of buying a car on finance and is paid in installments where payments are spread over 12-60 months and you usually (but not always) have to put down a 10% deposit. Pros Quick and easy to arrange Low deposit (usually 10%) Flexible repayment terms (from 12 to 60 months) Competitive fixed interest rates Cons You don’t own the car until the final payment Tends to be more expensive for short-term agreements
Personal Contract Plan This type of car finance deal is a variation on hire purchase and tends to result in lower monthly payments. Instead of paying for the car outright, you agree to pay the difference between its sale price and its price for resale back to the dealer. Pros Lower monthly payments Low deposit (usually 10%) Flexible repayment terms (from 12 to 36 months) A choice of what to do at end of repayment term Cons Mileage and condition of car affects the costs Total amount paid may be more than with hire purchase Have to pay the outstanding balance to keep the car
al Leasing
You can pay the dealer a fixed monthly amount for the use of a car,with servicing and maintenance included, as long as the mileage doesn’t exceed a specified limit. At the end of the agreement, you hand the car back. It never belongs to you. Pros Motoring at a fixed monthly cost No worries about the car depreciating in value Flexible payment terms (from 12 to 36 months) Cons Monthly costs are higher because servicing and maintenance are included Need to find a deposit (usually 3 months rental) Possible extra costs if you exceed the mileage limit The car is never yours
Car Finance Options - Things to Look Out For As you compare car financing, there are a few key things to do before making a final choice.
Make sure you can afford the monthly payment.
Make sure you compare interest rates by looking at the APR (annual percentage rate), which includes all the charges you have to pay. Remember that a higher deposit will normally mean a lower interest rate.
Compare the total cost of borrowing, including all charges over the loan.
Think carefully before buying payment protection insurance (PPI) or other insurance, such as GAP cover, which can be expensive and may give limited cover. GAP cover is designed to pay out if your car is a total write-off and the outstanding finance is more than the value of your car.
Beware of early repayment or other charges, which kick in if you exceed the forecast mileage in personal contract plans (and also personal leasing).
Shop Around
MoneySupermarket.com
Withnellcarsales.com
uSwitch
Compare the Market