There are several ways to secure financing for a car, and knowing the pros and cons of each will ensure you make the right decision.
A personal loan
If you want flexibility when purchasing a new car a personal loan is probably your best bet. With a standard personal loan, your loan will be unsecured i.e. will not be secured against the car and as a result you will be free to sell the vehicle at any time.
Having the funds prior to entering a car showroom puts you in a strong bargaining position which might lead to a significant discount on the final price of your new vehicle. Also, unlike the vast majority of hire purchase agreements, you can usually apply for a personal loan online or over the telephone.
For low cost, flexible personal loans you may wish to try a peer-to-peer personal loan where you borrow directly from real people rather than from a mainstream bank or loan provider. Peer-to-peer lending platforms like Lending Works have set the standard for their efficiency in processing and issuing loans, customer support and customer first approach – there are no banks, no big overheads and no big bonuses, resulting in lower rates. They also typically offer you the flexibility to make overpayments or repay early at any time without charge.
Hire purchase is still the most popular way to purchase a car in the UK. Payments are typically spread over a period of between one and five years, and they include a fixed rate of interest. The loan is secured against the car, so you could lose your car if you’re unable to keep up with repayments. You will also need to pay a deposit, an early repayment fee and a final payment to take full ownership of the vehicle at the end of the agreement. You won’t be able to sell your car until the loan has been repaid in full, but you will typically be able to hand it back to the loan provider after making half the agreed repayments.
Personal contract plan
The personal contract plan is a slight variation on the hire purchase model and it also requires a deposit and fixed monthly payments. However, you’re agreeing to pay only the difference between the value of the car on purchase and its value at the end of the agreement. When you’ve made all the agreed repayments, you have the option of paying for the vehicle outright, or handing it back to the loan provider. This method of buying a car can result in significantly lower monthly repayments.
However you choose to pay for your next vehicle, it’s important to shop around for the cheapest deals. A little hard work now could save you a small fortune in the long run – and that could mean finally getting behind the wheel of your dream car.
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