There are several benefits of owning a car. It not only helps in transportation but also enhances your quality of life. Besides, it provides you with the means to commute in your own schedule.
If you decide to buy a car, you must consider how you’ll finance it. Paying cash is the most cost-effective way to own a car. Maybe you can get your hands on a secondhand vehicle for a cheap price and focus on modifications. If these options aren’t available for you, you can consider numerous alternatives. This is where car finance comes in.
Car Finance Defined
Also known as auto finance, car finance refers to the various financial products available that allow you to acquire a vehicle with any finance arrangement other than outright payment. This can be through loans and leases. In simple terms, you won’t pay for the car in full upfront; instead, you’ll pay the balance over a set period.
Car Finance Options
This article discusses four of the several car finance options you can consider.
1. Personal Loan
Applying for a personal loan is one of the simplest ways to buy a car. This process involves borrowing money from banks and other financial lending companies to purchase a car.
The total amount borrowed should be repaid plus the accrued interest within the agreed time. When applying for the loan, you’ll be given an idea about your monthly installments and the duration of your loan. Only go through the loan when you’re satisfied with the terms.
Applying for a personal loan to finance your car purchase has several benefits. For one, the interest rate of a personal loan can be lower compared with that of other options. Therefore, your monthly installments and the total amount payable will be lower.
Another great benefit of a personal loan is that you can use it to buy a car from private companies. That gives you the freedom to decide on which brand of car to buy. Other options, like the hire purchase, restrict you to a specific car dealership.
Moreover, you do not necessarily need to go to traditional banks to apply. There are several platforms or lenders that allow you to apply for a loan online. Yes, you can finance a car online without physically visiting any bank. However, when going this route, you must partner with a reputable platform or lender.
2. Hire Purchase
Hire purchase is another option for purchasing your dream car. In this case, you pay an initial down payment and make equal monthly installments until you clean the amount you owe.
In hire purchase, you’ll be a registered keeper of the vehicle. You won’t own it until you make your final installment. The good thing about the hire purchase is that there’s no balloon payment at the end, so you can keep the car without giving out large amounts of money.
3. Personal Contact Hire
Personal contract hire does actually involve car financing. It’s an agreement where you hire a car to use it for the long term, but you’ll never own it. In simple terms, you’ll return the car to the owner at the end of the agreed period. However, you’ll be required to pay fixed monthly amounts.
Personal contract hire can be a better option for people who always want to drive new cars. You can also consider this option if you’ll travel to another country for work or business-related tasks.
4. Personal Contract Purchase
With a personal contract purchase, you’ll be required to make an initial down payment and monthly payments over an agreed duration. At the end of the agreement, you’re given two options. That’s returning the car or making a final balloon payment and keeping the car.
And like with most other car finance options, personal contract purchase allows you to be a registered keeper of the motor vehicle, so you can have it insured. However, you won’t own the car. Instead, you’ll be hiring it from the firm you signed the personal contract purchase deal with.
Takeaway
As you’ve read above, there are various finance options you can consider when purchasing a car. But your selection should depend on what suits you most. For instance, if you don’t want to keep the car at the end of the contract, then a personal contract purchase will be ideal. On the other hand, if you want to keep the car at the end of the agreement, you can go for a hire purchase option. And if you want to buy the car from a private seller, you can consider going for personal loans. The idea here is to choose a finance method that best suits your needs.
