You’ve done all the research, decided on the perfect new car for your needs and even negotiated a great price. Now you’re about to sign on the dotted line, but have you given enough thought to how you will pay for your new car? There are many different types of finance available, and choosing which one is best for you should be given the same amount of thought as choosing the car itself. A poorly researched finance deal could end up turning that good deal you negotiated into a poor one, so it makes sense to do a little research. Here are some of the main ways of financing a new car.
If you are lucky enough to have enough cash to hand, this can be an excellent way of buying your car. There will be no interest to inflate the true cost of the car, no payment plans to adhere to and no credit checks to undergo; you simply pay and go. You may want to consider, however, whether you want all of that capital tied up in a car when it might be able to work harder for you elsewhere.
This isn’t as far-fetched as it sounds. If you have sufficient balance on your card and you have an interest free period, for example, it could be a very efficient means of paying for your car. You won’t have to tie up your capital and will benefit from the protection offered by credit card purchases. If you don’t have an interest free period on your card, take care to check out how the card’s interest rate compares with a car loan. Also take care to calculate interest payable should your interest free period end before you plan to pay off the car.
Dealer finance and car loans
Most garages will have some sort of finance package on offer. These were traditionally car loans but now often involve some kind of leasing agreement. If it is a car loan or hire purchase agreement, take care to compare the interest rate and total amount payable to similar deals from banks or other finance companies. A quick look online will soon tell you whether the deal you are being offered is a competitive one. Remember that some garages will be motivated to offer a specific finance company’s products, so they are not necessarily giving an unbiased opinion.
Personal contract hire (PCH) and personal contract purchase (PCP) deals are becoming more popular. You must remember, though, that you do not own the car whilst making these sorts of payments. The car’s ownership will only pass to you should you decide to make a final balloon payment. The basic difference between PCH and PCP is that the PCP deal guarantees you the option to buy. Your ongoing monthly payments on a PCH or PCP deal can be lower than those of a car loan. This is because those payments are only covering depreciation in the vehicle whilst you are leasing it, not the full purchase price. Look out, too, for additional charges like excess mileage, which can make the deal far more expensive.
Whichever method you choose, we hope you enjoy driving your new car. And, if you need help choosing, don’t forget to take a look at a few of the car reviews elsewhere on TestDriven.