Buying a car is no picnic, especially when you cannot afford to pay outright. Even though you are about to buy a used car, you would like to finance it. One of the most popular methods to fund your vehicle is guaranteed car finance.
You can borrow money at lower interest rates irrespective of your credit rating because your car acts as collateral. If you are looking forward to buying a luxurious car, these loans are an ideal option as long as you have money to make down payment, which is generally between 5% and 10%.
When it comes to financing your dream car with the most affordable option, nothing can be better than paying cash outright because you will not have to pay interest. However, if you are dipping into savings make sure that you have enough of it in case any emergency pops up down the line.
If you do not have enough money to buy a car, you will, of course, turn to direct lenders to raise funds.
Buying a car is your own need, and hence these loans can finance your car without collateral and guarantor.
Personal loans are the most affordable option as long as you have a good credit history. These loans are unsecured, and hence a lender would always want you to have a good credit report.
Each lender levies different interest rates, therefore do not forget to shop around. Make sure that you raise money at competitive interest rates. Some direct lenders also provide these loans to bad credit borrowers. However, they will put you on a secured loan, which means your car will act as security.
Though borrowing with personal loans is easy, it might be challenging to apply for any other short-term loan unless you pay it off.
Whereas personal loans allow you to borrow money straight away, hire purchase (HP) will require you to make a down payment – around 10% – and then the balance in fixed monthly instalments throughout the agreement.
You will not get the title of the car unless you pay off in full. Missed repayments can crush your dream of owning a car because your lender may reclaim it.
Yes, it is not surprising to fund your car with credit cards. Depending on the policy of a lender and individual financial circumstances, some credit cards come with a high limit.
- Make sure you have an interest-free period.
- Compare it with other financing options to be sure that it will not cost you a small fortune.
As the name suggests, you will lease your car. You will enjoy the ride with one upfront payment every month until the life of the agreement terminates. These fixed monthly fees include the maintenance cost. Therefore, you do not need to be worried about depreciation. The only expense you will make along with it is fuel and insurance. It may seem an attractive option, but you will not own it unless the lease term ends.
Personal contract purchase
Personal contract purchase (PCP) is similar to HP; the only difference is it involves smaller monthly payments, with a more substantial amount at the end of the agreement. You can consider the last payment as a balloon payment because it will be the resale price of the car.
Monthly payments will fund the depreciation cost, and therefore they are lower than HP instalments. However, it is about to go up due to extended mileage and excessive wear and tear.
Before you sign the agreement, make sure that you know the size of monthly payments as well as the last amount. Sometimes people struggle to pay the resale value outright at the end of the term. You cannot own the car until you pay off the outstanding balance.
Whichever option you choose to finance your car, make sure that you can afford interest payments. Otherwise, you will lose your car. As far as it is about personal loans and credit cards, you will fall into a debt spiral. Debt is like a quicksand, the harder you try to get out of it, the deeper you will sink in.