A Guide To Buying A Car On Finance

Car Finance Guides & InformationNext to buying a home, buying a car is one of the biggest purchases many people will make in their lives. Many things are considered; a certain car maker, a certain model, or a certain feature you want.

There are also many important decisions to be made when shopping around for the right car insurance that fits your particular needs. Of course, there is much more to buying a car than just the usual worry of petrol and car insurance payments.

Before car insurance is even factored into the equation you will need to identify your means for purchasing your car. To do this you must choose from the several different ways to buy your car based on your budget and future plans.

This guide will point out all these ways to give you an easier method for finding the most practical car finance to meet with your current circumstances.

Factors to consider for your budget

Preparing a plan based on thorough research will ensure your financial security as well as satisfaction in your car purchase. It is important to always bear in mind your budget limits to prevent financial instability further down the road when you least expect it.

Be careful with the scams involving debt insurance for these car finance options. These are often very expensive and not worth the money on top of an already large monthly instalment.

Inquire about the sum of all fees and interest payments before signing any contract so you may know how much the car with these added costs will be. Documentation fees are among the extra hidden fees to watch for that bring in more profits to the car finance centre. Be careful to mind your budget and not pile on too many monthly payments for you to handle.

Here are some of your options for car financing to choose from:

  • Paying cash outright.
  • Personal loan.
  • Car leasing.
  • Hire purchase.
  • Personal contract plan.
  • Personal contract purchase.
  • Personal contract hire.
  • Bank and building society loans.

Paying cash outright as your first option

As your first option, financing your car outright should always be considered as the safest option. When buying your vehicle with your own money, like everything else in life, you are not bound by any stressful contracts. This makes it an ideal finance choice because it allows you to avoid paying the interest added on top of the car value that borrowed money would bring upon you.

In fact, some car dealer salesmen prefer dealer car finance buyers to cash buyers because they receive incentives on selling them dealer financing options that profit from interest.

Here are some of the positive and negative factors in choosing to buy your car outright with cash:

  • You will not have to pay interest to a lender.
  • You will have to lose one immediate lump sum of cash at the purchase.
  • You will not have to wait to make interest payments to own the car.
  • You may not have the same protection against a defective vehicle as dealer financing provides.

Choosing the outright cash buying option, however desirable it may be, is just not a possible car financing choice for some people. Fortunately, there are many other options you can choose from depending on whether or not you meet the specific requirements of the various lenders, like credit worthiness.

Be sure you look at the short term monthly costs of your finance options as well as the long term costs. Having the foresight to calculate finance costs down the road before making your final decision will give you more financial freedom. Always avoid spending money that is not needed, especially when determining the type of car you are going to buy.

Deciding on a personal car loan

Deciding on a personal car loan can give you the necessary funds for your new or used car under no contract with the dealer or car finance centre. The key factor in choosing your loan is to find a loan provider that offers a reasonable loan rate.

You will then go directly to the bank for your car loan so it is separate from the car dealer. The personal loan from the bank is then used to buy outright the vehicle from the car dealer with cash.

You will never make your car finance payments to the car dealer or finance centre, only to the bank or loan company that provided you with the loan. Buying the car outright with cash from a personal car loan classifies you as a cash buyer to the car dealer salesman. This may make it more difficult for you during your negotiations because of their incentives in attracting dealer finance buyers over cash buyers.

Here are some of the positive and negative factors in financing your car with a personal loan:

  • Your interest rate is lower than some dealer finance options.
  • Your loan is separate from the car allowing you more freedom with the car.
  • Depending on your credit worthiness you may have to make large monthly payments.
  • The dealer may offer some finance options that are more affordable than a personal loan.

Car leasing as your car finance option

When you choose car leasing as your car finance option you will never actually own the car that is leased to you. For a short length of time you will make monthly payments until the leasing term has expired. The car that is leased to you is then returned to the leasing companies. You will, however, have the option with some leasing companies to purchase the car when the term closes.

Here are some of the positive and negative factors in leasing a car:

  • The buyer is free from much of the maintenance costs.
  • You do not own the car.
  • Every few years you can have a new car.
  • The instalments are lower than other dealer finance options.
  • You will have to pay extra if you go past the set mileage limit.

The usual way that buyers choose to finance a car is to buy hire purchase. You can buy hire purchase financing through car finance centres or straight from the car dealer. In this finance option the buyer does not have ownership of the car while there are still finance payments to be made. Instead, you hire the car with the right to buy it.

Here are some of the positive and negative factors in hire purchase financing:

  • You will have reasonable interest rates that are negotiable.
  • You do not own the car until you have made all payments.
  • You do not have to remain bound to the finance agreement.
  • Your car will be repossessed if you do not make your payments.

The personal contract plan financing option is almost as widely used as hire purchase finance. However, unlike hire purchase you do not buy the car at the close of the term. You will pay the difference of what the dealer establishes as the value of the car at the end of the term along with the interest. You can later choose to deposit the difference on your next vehicle, end any further agreements, or just outright purchase the car.

Here are some of the positive and negative factors in personal contract plans:

  • You will have flexibility with your personal contract plan deal.
  • You will not have high monthly payments.
  • Some loans are less likely to have bad equity.
  • You can keep your car at the close of your term if you take a new loan or pay the future value figure.
  • You will not have to pay for some maintenance costs.
  • Depending on your personal contract plan you may receive insurance benefits.
  • You can give your car back to the car finance centre if its value is lower than predicted.

For private individual car financing there is personal contract purchase finance. Your personal contract purchase plan is protected by the Financial Services Regulations 2004 and the Consumer Credit Act 1974. You can create a contract agreement with monthly payments to escape depreciation. You can give the car back to the finance centre when the agreement is over, or you just buy the car.

Here are some of the positive and negative factors in personal contract purchase finance plans:

  • You can include maintenance in your contract which will also include road tax.
  • Your personal contract purchase will ensure the future worth of your car from the time you buy it.
  • You will have to pay a lump sum when buying your personal contract purchase.
  • All repair bills are included in your payment if your personal contract purchase plan has maintenance.
  • You are safe from bad equity and much depreciation.
  • You will have low monthly payments that are fixed.

Like a personal contract purchase, a personal contract hire is only for private individuals. Personal contract hire is the most widely used mode for car leasing. During the time of your car lease you will take full control of the vehicle.

However, you will never own the car during the personal contract hire. Until contract agreement ends you will just make fixed payments each month to the lease provider. When the agreement is over you can return your car and open a new lease, or end any further contracts. You should know how the lease provider establishes what your payments each month will be.

The worth of the car will be established by your lease provider at the end of the personal contract hire agreement by determining depreciation. You will have to stay within the car mileage limit to avoid penalties when the contract expires. You will then have to pay the difference between the retail value of the vehicle and the calculated future worth. This amount will be paid by taking instalments each month, not one lump sum.

Here are some of the positive and negative factors in personal contract hire finance:

  • Your personal contract hire will have lower payments each month than personal loans.
  • There will likely be a road fund license in the personal contract hire agreement.
  • Your personal contract hire agreement will include car services and repair if it has maintenance.
  • You will be able to have fixed prices on the cars you hire without interest.
  • You do not have to calculate the costs of depreciation because you will not sell the car.
  • After the agreement is over you cannot purchase the car like in other finance options.

Bank and building society loans

An important factor to consider when choosing a car finance option is the finance length. You can get a 5 year loan from many building societies and banks to purchase a car. The higher you choose your monthly payment the faster you can repay your loan and save your car from as much depreciation as possible. If you should later choose to sell your car you will want it to value close to what it was when you purchased it new so that the depreciation is a minimum. When choosing a bank or building society loan always remember well that you need a reasonable loan rate that you can handle in the months to come.

More important things to know when buying on finance

Buyers who have poor credit records can easily be preyed upon by dealers who earn commission on selling you there finance options. Dealers can give an APR to you that has a low base rate and also a true APR that is much larger. Let it be known, if buying on finance, that you will own the car only when you have made the last payment.

You can ask the car finance centre for a settlement if you find a way to buy outright your car whilst still making the monthly payments. It is useful to remember that cars purchased on finance are protected against defects from the dealer under the Sale and Supply of Goods Act 1994. Also, you do not have to keep your car if you buy on finance and pay half of the total cost and still find the sum you owe more than the car’s value.