2:32 PM What’s the best way to finance buying a car? Money Advice Service | ||||
#cheapest car loan # 200,000 people are taking care of their money with our FREE money advice newsletter.Send me money advice Don t worry, we won t share your details. See our privacy policy. Buying a car is no simple decision. From buying outright, to buying a car on finance, there are many options. You also have to consider running costs. In fact, it’s probably the second most expensive thing you’ll buy after a home. So it’s important to make sure you get the best deal on financing. Cash or savings?When interest rates are so low, it’s likely that your savings will not be earning much in a bank or building society account. So rather than keeping your savings and borrowing at a higher rate of interest, you could use them to fund all or some of the cost of the car.
Use our Car costs calculator to work out the total cost of motoring. Personal loanDid you know?Personal loans are usually the cheapest way to finance a car deal, but only if you have a good credit rating. You can get a personal loan from a bank, building society or finance provider so long as your credit rating is good. Make sure the loan is not secured against your home. Otherwise you will be putting your home at risk if you failed to keep up with repayments. Shop around for the best interest rate by comparing the APR (or annual percentage rate, which includes charges you have to pay as well as the interest). Pros
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Hire purchase (HP)Hire purchase is a form of buying a car on finance and is paid in instalments where payments are spread over 12-60 months and you usually (but not always) have to put down a 10% deposit. They are arranged by the car dealer and are often very competitive for new cars (less so for used cars). The loan is secured against the car, so you don’t own it until the last payment is made. Pros
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Personal contract planThis type of car finance deal is a variation on hire purchase and tends to result in lower monthly payments. Instead of paying for the car outright, you agree to pay the difference between its sale price and its price for resale back to the dealer. This is based on a forecast of annual mileage over the term of the agreement. Payments are spread over a shorter term of 12 to 36 months. At the end of the term you can: Personal leasingYou can pay the dealer a fixed monthly amount for the use of a car, with servicing and maintenance included, as long as the mileage doesn’t exceed a specified limit. At the end of the agreement, you hand the car back. It never belongs to you. Pros
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Car finance options - Things to look out forAs you compare car financing, there are a few key things to do before making a final choice.
Shop aroundThe best way to shop around for a good deal is to use an online comparison site. Here are some of the sites you might want to consider.
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