If you are in the market for a new car, then getting your next car on finance could be a sensible move. Car finance deals make it easier to manage the cost of buying a new car by spreading monthly payments over a minimum term, meaning that you can drive away without making a huge dent in your savings.
Along with this, car finance means that you can access newer, nicer cars sooner as you don’t need the entire cost of the car ready in cash to make the purchase. But before you go ahead and apply for finance to buy your next car, it’s a good idea to make sure that you understand the options that are available to you. Keep reading to find out more about the different types of finance plan available and the things to be aware of before you sign up and take the deal.
HIRE PURCHASE
Hire purchase is the main type of finance offered by companies. With this option, you can get hire purchase finance on a wide range of different used cars with something for everybody. This type of car finance is secured against the car itself. You aren’t the owner of the car until the final payment is made, and while you will be responsible for maintenance, you can’t sell or make any major changes to the car without the lender’s permission. You will usually be required to pay a 10% deposit to secure the car, followed by monthly payments for a fixed term.
PERSONAL CONTRACT PURCHASE
This type of car finance contract involves paying a deposit and then making low monthly instalments over a fixed term. Once you reach the end of your monthly payments, you can either return the vehicle, sell it privately to repay the remainder, or make a ‘balloon payment’; a lump sum to purchase the car outright and become the legal owner of the car. This type of agreement usually comes with mileage limits, and you are only hiring the car until you make the final payment to buy it.
PERSONAL LEASE
This option is similar to personal contract purchase. However, when you go down this route, there is no option for you to buy the car at the end. You will usually have to pay a deposit equal to three months’ payments in advance. Since you don’t own the car and can return it and swap it for a new one when your term is up, this is a good option for people who like to change their car frequently and don’t want to deal with selling a car that has depreciated over time. Mileage limits will often apply, and you may be able to find deals with servicing, MOTs, and other maintenance included.
PERSONAL LOAN
If car finance isn’t the best option for you, then another option for financing your next car purchase is to get a personal loan. With this option, you can borrow the amount that you need to pay for your car outright and then repay it to your bank. When you take this route, you don’t have to pay a deposit, you are the owner of the car from the start, and you can spread the loan payments out over a period that works best for you. In addition, the loan won’t be secured against the car so you won’t lose your car if you can’t keep up with the monthly repayments.
A FEW POINTERS ON GETTING THE BEST CAR FINANCE DEAL
If you want to buy your next car on finance, there is certainly no shortage of options to choose from. The better your credit score, the more finance deals you will have access to, often with competitive interest rates. Selling finance deals is often a major goal for car dealers, so it’s important to know some of the best strategies to get the best possible deal.
Know the Rates
When applying for car finance, the APR or annual percentage rate is the main figure to understand. This refers to the interest that you will pay on your car finance loan over the term of the agreement. Check how it stacks up in comparison when you are offered different payment plans and compare it to the APR of any personal loans that you might be eligible for. This will help you choose the deal with the cheapest interest.
Consider the Long Term Cost
While a cheap monthly payment option can be appealing, it’s important to consider how much it is actually going to cost you over the long term. Cheap monthly payments often mean a longer repayment term, which usually mean you are paying for interest for longer and may work out more expensive compared to paying more monthly for a shorter period of time.
Take Your Time and Shop Around
Don’t go with the first car finance option that you are offered. Different deals may be able to offer you different finance plan options, and some dealers might offer discounts on the car when you sign up for a certain finance plan. It’s definitely worth taking your time to do your research and avoid being pressured into signing something immediately. Once you have a few quotes, spend some time having a closer look at the terms and conditions so that you can make the most informed decision regarding the deal you want.
Read: Finding your IDEAL finance option when buying a used car
Negotiate
When it comes to getting car finance, many people don’t realise that you can negotiate. There are a few factors that you may be able to negotiate with the lender to get a better deal. For example, you could negotiate a lower APR to save hundreds of pounds over the duration of your finance agreement. You can also negotiate the deposit amount that you contribute, although bear in mind that a lower deposit often means higher monthly payments.
Today, car finance is one of the most popular ways to buy a new car. If you want a new car paid for in a manageable and affordable way, understanding the different types of car finance and which one is best for you is important.
And if you’re wondering whether you can sell a financed vehicle, then check out our IDEAL guide to that here.