Purchasing a car is not a simple decision to take or a simple process to undergo. Right from taking the decision of which car to buy to financing the vehicle, everything requires deep insight and research.
Here are some finance options to check out.
Cash or Savings
If the rate of interest is low, it is natural that your money will not earn much staying in the bank. Therefore, it is better to use the money to finance the purchase instead of borrowing at a higher interest rate.
The idea of financing preapproval is an important aspect of buying a car. Preapproval makes the purchasing process simple and is in itself a not so time-consuming aspect. You need to speak to a lender who will offer you a form to be filled up. By checking your credit, the lender will make sure that you have enough credit and can be easily worked with. Preapproval may also allow you to get a better deal on the financing part.
Hire purchase (HP)
Hire purchase is used when you want to purchase a car and pay in installments over a period of 1 to 5 years. In this regard, you need to pay a 10% deposit. Hire purchase is essentially arranged by the dealer of the cars and are often apt for new cars. Since the loan is secured against the vehicle, you do not own the car until you make the last payment. This process comes with many benefits that are stated below.
- The deposit is low (generally not more than 10%)
- The arrangement is easy to accomplish
- The car loan interest ratesare fixed
- The repayment terms are flexible (from 1 year to 5 years)
Shop around to make sure that the car you are buying and the financing you are opting for are perfect for you. Like all other things, cars too need to be shopped around. Getting the best financing deal is a must, if you want to close the deal. Sometimes, dealers offer lucrative incentives on their plans. Shopping around can tell you what deals are present in the market, so that you do not lose any opportunity to pay the minimum amount.
You may take a loan from a bank for the new car you are purchasing. It is best to approach a bank, which offers lucrative deals. In the event that you already have a primary account in the bank, you may expect lower interest rate or an additional incentive.
Personal contract plan
If you want to pay lower monthly payments, the personal contract plan is ideal for you. Very similar to hire purchase, here, you have to pay the difference between the price for resale and sale price. In this case, the payment is covered over a period of 1 year to 3 years.
Be careful of the following when choosing a car financing option.
- Look at the annual percentage rate (APR) and make a comparison of available interest rates. The APR will give you an insight into the charges you need to pay and also let you know that the higher deposit you choose, lower the rate of interest you have to pay.
- Ensure your financial capability to make the monthly payment.
- If you want to purchase PPI ( payment protection insurance) or any other insurance, make sure that you opt for an insurance, which offers longer coverage period.
- If you somehow exceed the forecast mileage, you need to be aware of early repayment.
- Make a comparison of the total cost, you will have to incur for borrowing and all other charges.
The above-mentioned finance options are all useful provided you understand the consequences of each one and realize which one is most apt for you.