Buying a car is a big financial commitment. In fact, a new car is the one of the biggest purchases you’ll ever make apart from buying a house. There are a number of ways to finance the purchase of a new car and the best one will depend on a number of different factors.
If you have enough fluid funds, you might be able to buy a new car outright. This means the vehicle is yours as soon as you sign the paperwork and you will not have to borrow money or pay any interest in order to make the purchase.
This is a tempting proposition but it may not be the best idea. The main reason for this is that it could leave you with little disposable income – something which makes you unable to spend as freely as you wish elsewhere.
You could also miss out on the benefits of earning interest on this money. If you found car finance packages that offer 0% interest, your money could actually be working harder if left in a savings account.
Once again, this option allows you to own your car outright but means you have to make set repayments to your bank or credit provider. The interest rates are not always secure with this finance option and that means you may struggle to keep up with your repayments. This in turn could affect your credit score.
Under this kind of arrangement you usually put down a deposit and then make regular payments until you repay the balance. Repayment terms are usually quite flexible. The interest rates are usually competitive but the loan is secured against the car so in effect you don’t actually own it until the last payment is made.
Personal contract plan
This is similar to hire purchase but you pay the difference between the vehicle’s original sale price and its resale price at the end of the term. At the end of the term you have the option to pay the resale price and keep the vehicle.
You can also choose to simply walk away (effectively having hired the car for that time) or you can trade it in and start the process all over again with a new car.