5 different ways to fund your next car.
For many of us, we need a car to get around and it can be a lifeline for a number of drivers. Having your own car gives you the freedom to do the things you want to do, transport your family, and use it to get to work. Whatever your reason for needing a car, you may be wondering what’s the best way to purchase a car. This guide looks at the 5 most popular ways in which you can buy a car and provides more information so you can decide which is best for your circumstances.
Paying outright with cash.
Paying for a car with cash is probably the most cost-effective way to fund your next car purchase. You can buy a car from a dealer or a private seller and pay for it with one lump sum. It means you are the legal owner of the car from the start of the deal, you can modify it as you like, sell it when you want and there’s no interest to pay! However, it’s worth remembering both second-hand and brand-new cars can now cost a lot of money to buy outright so you would have to have large savings account and it means you do not have any emergency money left if you use all your savings on a car.
Finance a car with Hire Purchase.
Hire purchase is one of the most straightforward ways to finance a car. Hire purchase is when a lender agrees to buy the car from the dealer on your behalf and you make equal monthly payments that equate to the value of your chosen car and any interest to pay too. You can spread the cost over a term that suits, usually over 3-5 years and tailor the deal to fit in with your monthly budget. Hire purchase can be a good option when it comes to car finance for bad credit scores as the lenders owns the car and can take the car away from you if you fail to repay. However, you will need to meet the lenders criteria first before you could get a car on finance.
Take out a Personal Loan.
Personal loans can be used to buy a car, but they can also be used to buy whatever you like. A personal loan is when you borrow money from a lender and if accepted, the required amount gets deposited straight into your bank account. You can then buy a car just like a cash buyer and make payments back to the lender each month over an agreed term. The loan isn’t secured against the car which means you own the car outright. If you fail to stick to the terms of the agreement, it can lead to more serious financial consequences and the lender can take you to court if needs be.
Personal Contract Purchase car finance.
Personal Contract Purchase (PCP) is actually a form of hire purchase, but it works in a different way. Instead of making equal payments to cover the cost of the car, you instead make smaller monthly payments and leave much of the loan till a final balloon payment. If you wish to keep the car at the end of the deal, you will need to pay the balloon payment which can be thousands of pounds to pay, depending on the value of your car. If not, you can also choose to hand the car back to the dealer or use any positive equity in the deal to get another car on PCP.
Purchase a car on a credit card.
It can be possible to pay for a car on a credit card but not all dealers will allow you to do so. It can be worth checking with the dealer before you decide to go down this route. You will need to make sure your credit limit will stretch to buying a car first and be able to make more than the minimum payment back or it can take a long time to pay off the loan. You are protected under the Consumer Credit Act when you buy a car on a credit card, and you will usually be able to get your money back if anything goes wrong with the purchase.