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Nothing about the process of buying a car is easy, especially when it comes to the finance part of the deal. Regardless of what car you buy and how you pay for it, it is usually a costly expenditure (especially compared to everyday purchases) therefore you need to be extra careful to ensure you make the right decision. Here is everything you need to know about car finance.
Everything You Need To Know About Car Finance
There are a variety of different ways to pay for a car even if you don’t have the cash to pay for it all in one go. The banks and other finance companies offer loans that will allow you to make monthly repayments.
Why cash is best
First of all, so long as you can afford to do so and you have money left over to cover any unexpected costs, paying cash and buying a car outright is the cheapest option.
When you buy the car outright, you don’t have to pay any interest on repayments like you would on any other form of loan. On top of this, because you own the vehicle, you can choose to sell it whenever you like. With any form of personal contract hire or other car finance, you are not the legal owner of the vehicle. Therefore you don’t have the option to sell whilst you are still tied into the contract.
One important thing to consider is paying part of the purchase on a credit card, regardless of whether you have enough cash or not. This is because you will be protected by your credit card company if anything goes wrong. Or if there is a problem with the vehicle.
Even if you don’t have enough cash to buy a vehicle outright, it can be handy to have the option to put a lump sum down as a deposit so that the repayments will be cheaper.
How your credit score affects finance
Like most financial things in life, having a good credit score when you are buying a car can be extremely important.
If you are using a finance company or the bank to pay for the vehicle then you will undergo a credit check. If you have a good credit score then you will be open to better deals. However, it is still essential that you can afford the deals you are choosing.
Before choosing a car and a deal, it is important that you go through your finances. Ensure that the monthly repayments are possible without leaving you in debt or with money problems.
Hire purchase
A hire purchase is simply a long-term car rental contract. But you own the vehicle at the end of the agreed term. You will pay a deposit at the beginning of the contract, and then you will make agreed monthly repayments until the full price of the vehicle is payed off (plus interest) . It is only then that you will become the legal owner of the vehicle.
Personal contract hire
With a Personal contract hire, you have more options than you would with hire purchase. Like with the above option, you will pay a deposit and make monthly repayments. However, the payments are often cheaper as you are paying the estimated price that the vehicle will be worth at the end of the contract agreed.
Once the contract has finished, you can trade the car in and do a similar process with another car. Or you can simply give the car back. If, however you want to own the vehicle there will be the option to make a large lump sum to pay the car off. Only then will you be the legal owner.
Things to remember
- Remember that you need to be able to afford ongoing monthly repayments if you buy a car on finance.
- You will be paying interest on a financed car so the cost will be higher.
- Decide how long it is likely you will want to keep the car. This determines which option is best for you.
- Do your homework and make sure that you are getting the best deal possible.
*This is a collaborative post – for more details see my disclosure policy