Financing the purchase of a car can be confusing, with such a wide range of car finance options available to you. Do you get a personal loan or do you go with a manufacturer's deal and part-exchange your current vehicle?
Here we highlight the most common ways that car finance is raised:
1. Hire Purchase
This option is offered on new and used cars by dealers and can be fairly easy to arrange. However, you do not own the car until the final payment, which means you cannot sell it until you have settled up your loan. Interest rates vary, but can be competitive against bank loans.
While you may spend the next 20-odd years paying for your car, remortgaging is still one of the cheapest ways to borrow (unless you get interest-free finance – see below). If you are a homeowner with some equity in your property, most mortgage companies will allow you to borrow more for other things like a car purchase.
3. Interest–free Finance
Available from some car manufacturers or dealerships, interest-free finance is normally for brand new cars only. However, these can be a great way of getting a new car without paying interest on any finance. However, getting interest–free finance and a discount at the same time can be hard – so it may pay to haggle hard on the price of the car and borrow elsewhere.
Monthly payments from your bank account are spread out over a pre-defined period (normally 3 – 5 years). At the end of the period, you have a residual or balloon payment to make, if you wish to purchase the car outright, or you can often take out another lease to extend the term you have the car.
5. Personal Loan
A personal loan can be arranged separately from the purchase of a car, meaning that in the eyes of a dealer, you are a ‘cash’ buyer. Personal loans can be arranged via banks, building societies and finance houses.
6. Car Loan
This is another name for a personal loan, although you may get additional benefits such as payment "holidays" or a free car inspection prior to purchase.