Not very many of us have enough cash kicking about to just go out and buy a new car. Therefore, whether you are looking to buy a new or used car, it is important to choose the best way to finance your purchase, because making the right choice could save you tons of money.
Hire purchase plans
Both car manufacturers and car dealerships will commonly provide excellent finance deals on new vehicles. These include low interest rates being offered on hire purchase plans. They require an upfront deposit in combination with monthly installments. When all installments are paid off, the car is yours, but what’s great is that you can drive the car right from the beginning.
However, your car can be repossessed at any time if you don’t make your payments or fall behind. You would lose not just the car but also all the cash you paid up until that point. You cannot sell the car until you have paid the car off completely, and most of these agreements penalize you if you pay the loan off early.
A personal loan is quite different from a hire purchase agreement. It allows you to sell the vehicle and pay off the personal loan if you find yourself in a situation where you can’t continue making the payments.
If initially you are concerned (even a little bit) about being able to make your monthly repayments, it might make more sense to get a low-rate loan. The best personal loans available on the market have an interest rate as low as 5%. However, you need to remember that these types of deals are available only to the borrowers who have a perfect credit score. Personal loans available to those with less than perfect credit scores are always far more expensive.
A leasing agreement is simply a long-term rental contract where you pay a monthly fee for the use of a particular vehicle for a certain period of time and a specific number of miles. Lease agreements are popular with those who prefer to always be driving a new car or a car that’s no more than a few years old without having to pay for it upfront. There are two main kinds of lease agreements:
- Personal Contract Hire (PCH) – allows you to have a new car every couple of years without having to buy the vehicle at the end of the agreement.
- Personal Contract Purchase (PCP) – with the PCP, you actually have a balloon payment at the end of the lease, and then you own the car. The amount will be stipulated in your agreement.
If you aren’t comfortable with paying and never owning, the Personal Contract Purchase would be a better option for you. Whether it’s a PCH or PCP, be sure that you carefully check the terms and conditions for extra charges such as mileage and penalties. You should also consider getting guaranteed asset protection insurance. This will cover you if the vehicle is written off or stolen and your insurance company refuses to pay more than what the current market value is. This protection will ensure you won’t be left with a huge debt.
0% credit cards
If you are considering buying a cheaper second-hand car, a credit card that offers 0% for an introductory period might be a great choice. If your credit score is good, this might be a smart choice. The advantage here is that you will pay no interest on the money you borrow if you can repay the full amount within the interest-free period. However, it’s going to take some serious discipline, because if you go past the 0% interest rate, you will land up paying a higher interest rate that will take away all the benefits.
It is important to remember that like those cheap personal loans, the 0% interest card is limited to those who have a good credit score.