Finding the right car to meet your needs can be difficult, but deciding how to pay for it can be more challenging, especially for new drivers who are often overwhelmed with the purchase cost of the car as well as general running costs. Before you buy a car, you will most likely consider if you can even afford it. If you have enough savings, paying for a car in cash is nearly always the most cost-effective option. You can also use your savings to give you the biggest deposit possible.
If you don’t have enough cash to buy the car outright, don’t fret. There are several financing possibilities available to car buyers like you. Each of the vehicle financing options has its own advantages and advantages, so take time to think through each so you can determine which payment option will be best for your situation.
Personal loan
A personal loan from a building society, finance provider, or a bank lets you spread the cost of a car over one to seven years. You may end up paying more in total than if you choose to buy in cash, but it’s easier on the budget on a monthly basis. The car is considered yours from the first payment. Personal loans are recommended if borrowing money over the long-term, especially if you have a good credit rating. You can shop around for the best interest rate by comparing the annual percentage rate, which includes all of the charges you have to pay. The higher the deposit you make, the lower the interest rate will be.
Hire purchase
Car dealers offer buyers this option, in which buyers would only have to make a deposit of around 10% of the car’s value. Buyers then make a fixed monthly payment for a period of 12-60 months. Unlike when you buy the car through a personal loan, in hire purchase you will only completely own the car after the last payment is made. Getting a car through hire purchase is easy and can be quickly arranged, but it tends to cost more for short-term agreements.
Car leasing
In car leasing, buyers make fixed monthly payments until the leasing contract expires. The payments are lower but there’s a mileage restriction. If you choose this option, you have to be careful not to exceed the forecast mileage or you will have to pay a fee. There are two types of car leasing: personal contract purchase (PCP) and personal contract hire (PCH). In PCP, buyers agree to pay the difference between a vehicle’s sale price and its resale price, and they will also have the choice to buy the car at the end of the lease by paying the outstanding balance of the resale price. In PCH, you can hand back the car to the dealer at the end of the lease and pay nothing, but the car is never considered yours. PCH is ideal for those who like being able to change cars frequently.
The finance option you choose should meet your needs. For instance, if you’re looking for low monthly payments and don’t mind changing your car every three years, then a PCH deal would be best for you. Whichever option you choose, make sure you take into consideration not only the amount of your monthly payment but the car’s running costs as well.
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