For many people, their car is almost like an extension of themselves. It goes everywhere with them, they rely on it to get from A to Z and, for many, it mirrors their personality. Whether it's a sports car for an extrovert, or a safety-centred car for the cautious, a person's choice of car can say a lot about them.
But for others, the most important feature of a car is its price. Indeed, most people aren't in a position to buy their car outright, therefore it's worth looking at the different options that are available to fund that new automobile.
Personal Loan
The first, and perhaps most obvious option, is to get a personal loan from a bank or other financial institution. This is normally a reasonably straight-forward process and is simply a case of shopping around for the best interest rates. Many consumer-orientated websites can suggest the current best deals.
As far as the car-dealer is concerned, this is simply a 'cash' sale, and they don't get involved in any of the behind-the-scenes financing of the car. It might be worth discussing this with the dealer, however, as it is generally in their interest to sell a car finance plan too, as they usually operate on a commission basis. They may be able to offer a hire-purchase deal with better terms than that of a bank loan.
Hire-Purchase
A hire-purchase deal is likely to be the preferred car finance option of any car-dealer, given they will receive a cut of the money from the finance company. Although it's easy to arrange on both new and used cars, the car isn't 'owned' until the final payment is made, meaning it's not possible to sell the car on until then.
Car Loan
A car loan is similar to a personal loan in most ways, except the bank or financial institution may offer a few additional benefits, such as the option of taking payment 'holidays'. Usually though, a car loan is simply a personal loan with a different name to appeal to a specific consumer market.
Interest-free Car Loan
Whilst this may sound too good to be true, it is possible to secure an interest-free loan for a car, normally directly from the dealer rather than a financial institution. Naturally, however, there are restrictions in place. Firstly, it is normally only available on 'new' or 'nearly-new' cars. Secondly, the repayment timescale will normally be over a relatively short period, such as two years.
Furthermore, a near-perfect credit history will be needed and large penalties will be in place for breaking any of the terms of the agreement. Needless to say, it is prudent to analyse the small-print carefully for hidden clauses.
Remortgaging the Home
Remortgaging the home helps to release existing equity which can then be put towards anything, including buying a new car. Whilst in many ways this is the cheapest way to borrow money due to the lower interest rates, there is the potential to still be paying off the car years after it has reached the scrap heap.
Personal Contract Purchase (PCP)
PCP has become an increasingly popular car finance method in recent years. The main advantage of this system is that it helps to avoid the depreciation trap, whereby a new car decreases significantly in value in a comparatively short period of time.
This is essentially a conditional sale agreement. A contract-term is agreed, usually somewhere between 2 and 4 years, and then set monthly payments are made. At the end of the contract period, the car can either be handed back, or a 'balloon payment' can be made to purchase the vehicle outright.
Credit Card
Perhaps not the most conventional means of paying for a new car, a credit card is actually one of the better options for several reasons. Firstly, there are no fixed monthly payments. If, for whatever reason, finances are particularly tight one month, only the bear-minimum needs to be paid without breaching any terms of agreement.
Secondly, the money on the credit card isn't secured against the vehicle, meaning the car is owned outright from the very beginning. Nobody from the bank can come and take the car away.
Thirdly, and perhaps most appealingly, credit cards with 0% interest for limited periods do exist, for anything up to 12 months. Of course, the interest may be astronomical after this period, but with a cautious approach, this can be a very good deal.
Of course, the one down-side to paying with a credit card is that they typically have limits of only one or two thousand pounds. But if a second-hand car is being purchased, this might just be enough to cover it.
Straight Swap
Perhaps not a preferred option for some people, doing a straight-swap with a car-dealer may be a good idea in some circumstances. If the plan is to downgrade an existing car, it may be more cost-effective to do a straight-swap with a dealer rather than selling then re-purchasing.
Company Car
A company car was once a staple part of many job 'packages' but has declined in recent years. It may be worthwhile negotiating with an employer for a company car as part of the overall remuneration package. Although tax is paid on it, it does save a substantial amount in terms of the initial outlay that is required.
City Car Club
The City Car Club is a relatively new venture. By joining, it gives people the freedom of a car when they need one, without all the overheads that are typically involved in owning a car. The 'pay-as-you-go' ethos here is a sound one, and City Car Clubs are located throughout the UK. But it ultimately doesn't culminate in ownership, which is ideal for the more casual car user.
Everybody has different needs from their car and, ultimately, everybody has different financial constraints. Without question, it's worth investigating all the funding options, as there are many finance plans to suit every situation.
