Financing a Car Purchase, What are My Options?

By: Liam G

For most people, the prospect of buying a new car is one preferably avoided. Not only is there the often arduous process of actually choosing the make and model, but then there is the task of deciding which car financeoption will be used.

More often than not, buyers rely on some kind of car financeoption as they do not have a large lump sum readily available which would allow them to buy a car outright.

For this reason there are a number of car finance options available to buyers, each suited to individual needs, the most popular of which are discussed below.

Hire Purchase (HP)

Also known as "dealer finance", this is possibly the oldest method of car financing. It is still offered in most dealerships today and can be arranged directly with lenders.

It involves securing the loan amount on the car, much like how mortgages are secured against homes. This of course means that the car isn't fully owned right up until the last payment. It also means that failure to make the repayments could result in the car being repossessed.

The good thing about HP is that once the final payment is made, the car is then yours. Interest rates and any required deposit are generally quite low, not as low though as most personal car loans.

Personal Car Loan

Personal loans are arranged directly with lenders or banks. The money is then used to purchase the car. Due to the competitive nature of the personal loans market this option is usually the most cost effective.

As the loan is arranged separately from the purchase of the car it can be especially suited to first-time buyers.

Generally speaking, the only time a personal loan may not be best option is if the applicant has a particularly low credit rating. This is because the APR they may end up paying, may not be as low as the advertised rate.

Lastly, personal loans can sometimes take a few days to arrange.

Personal Contract Hire (PCH)

Also know as "car leasing", this is the best option if you wish to change your car every few years, and don't have access to a big deposit.

In most cases the car remains the property of the dealership, with monthly payments being made for the length of the term, usually 12 to 48 months.

The good thing about PCH is that they can be quite flexible in that some dealerships offer the option to purchase the car at the end of the term and road maintenance packages are sometimes thrown in as an incentive.

Although the monthly repayments for PCH can be quite low, exceeding any stated mileage and removing any modifications at the end of the term can work out costly.

Finance
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