Sizing up the options of buying a car

Not many of us can afford to buy a car
outright and one way or another we’ll go down the finance route;
the only problem is that there isn’t just one direction to take
when doing finance for a car and you have to weigh up your
circumstances in order to decide which way you go.

To the uninitiated, car finance might
seem daunting, but with the right knowledge you can go into any
dealership and be confident about what you want to get out of car
ownership and how you want to pay for it. Everyone has different
needs from a car; you may want it as a simple run about or to use for
business.

There are four main methods of paying
for a car: loan, lease, hire purchase and dealer finance.

Personal loan

Getting a personal loan to pay for your
car is the most popular option these days, as it can be done with
relative ease. This method is good for those that don’t have a
deposit, want to full ownership and plan to keep hold of it for a
while.

The best benefit for using this method
is that you get full ownership of the car immediately and if you’ve
been with a bank for a lengthy time they should be happy to
facilitate your needs, although you may find cheaper alternatives

The APR rate is where you will want to
research the most when considering this option, with the lowest
number being the best. Most companies will mention their standard
interest rate, but this could change depending on your credit
history.

Paying back the loan will differ on the
length of time you want to pay it back, with smaller monthly
repayments for those that go with longer deals, but they come with
higher interest fees, so try to keep the loan deal as short as you
possibly can.

Hire purchase

Going ahead with hire purchase (HP) is
good for those who want to own their car eventually, like to have
fixed monthly repayments and would like low-risk credit secured
against the car only. With this option you will require a deposit
(normally 10 per cent) which is then followed by a set number of
monthly payments that differ depending on how long the deal will
last, and finally, there is an option to make a purchase fee to own
the car outright.

If you don’t make that final payment
ownership of the car is not complete and the driver has no right to
sell the car and there are many other circumstances that can the
transaction slightly awkward.

Personal contract hire

This method of purchasing a car is for
those that really don’t want to be affected by the depreciation of
their car and are not looking to take ownership at any point, as well
as wanting the freedom to change cars frequently. Some people may
know this as persona leasing and the whole idea is to make slightly
higher monthly payments than the other options, but obviously as
you’re hiring the car, you’ll never actually own it.

The deal will usually last about two or
maybe three years and you’ll have a certain yearly mileage to stick
to otherwise extra charges will be added. As a result, you have to
make sure you keep a keen eye on the condition of the vehicle,
otherwise a fee will be incurred, but repair bills can be implemented
into the deal if damage is suffered.

Dealer finance

This is an option that is taken up by
those who aren’t looking to perform much research and are happy to
just go with whatever the dealer says, although looking for the best
dealer prices is advised. Benefits of this method are few, but it
does allow you to get package deals that might include free finance,
0% APR or three years’ worth of servicing.

The full repayable amount is where you
want to be looking when comparing deals, not particularly monthly
payments, and then compare these to what you can get on the open
market.