The Ultimate Car Finance Guide
After your home, buying a car is likely to be one of the most significant purchases you will make. Parting with this amount of money is a serious prospect, so it is really essential to do your research before weighing up the pros and cons of the various options available to you to arrange your finance.
One of the major pros of opting to use your credit card to buy a car is that, with a bit of groundwork, you may be able to save a considerable amount of money compared with other finance routes. If you are accepted for a card with an introductory 0% interest rate, and you repay the loan before the introductory period expires, you will have essentially made a totally interest free purchase. Buying with a credit card also ring fences your purchase with extra protection under the Consumer Credit Act 1974. Additionally, several credit cards offer extra rewards, from cash back to air miles, so if you are confident that you can repay to schedule, you could end up better off than had you paid with cash. Of course, you will need to ensure that a credit card is an accepted form of payment at the dealer and that they will allow you to put the whole purchase price of the car onto the card. Many dealers will accept a fairly large deposit on a credit card but will request the balance in cash or balance transfer, meaning that you will have to either have ready cash or another finance method ready to go. Depending on the purchase price of the car, you will need to ensure that your credit limit is sufficient to cover the cost. Some dealers may allow you to split the balance between two cards.
Many people opt for the personal unsecured loan route to finance their car purchase. If you are lucky enough to have a decent credit rating, you should be able to negotiate a loan via your current bank. Alternatively, to get a good overview of all the options open to you, you could choose to shop around using comparison sites for the best deals on the market. Always remain realistic about what you can afford in terms of repayments, and try to borrow over the shortest reasonable time frame. One negative of this method of financing your purchase is that if, for whatever reason, you should default on the payments, your lender holds legal rights over all your assets and not just the car. However, a personal loan is an ideal way to go if you do not have the deposit to get a finance deal, you wish to own the car outright from the beginning, and you are confident that you will be able to afford the repayments.
If outright ownership does not bother you so much, you could perhaps consider a hire purchase arrangement. This essentially involves putting down an initial deposit upfront. You then go on to repay the balance monthly over an agreed period of time. You do not officially own the car until the balance has been paid off in full. This method of purchasing a car comes with the additional benefit that, should you find yourself in financial difficulties, only the car will be regarded as an asset to be seized. So, if you can't continue your repayments, you will lose the car, but that is the worst case scenario.
Personal Contract Purchase
A similar arrangement to Hire Purchase is a PCP (Personal Contract Purchase) which is a slightly more flexible method of purchase whereby at the end of the agreement you are given several options. You can choose to keep the car in return for a final payment which will be set depending on a number of factors. You can also opt to return the car or trade it in for a different model.
Personal Contract Hire
PCH (Personal Contract Hire) is an arrangement whereby you are essentially leasing the car over a given term and agree to keep to a predetermined mileage. At the end of the term, you simply return the car. There is no option to purchase.
You can choose to finance your car by getting a finance deal from either the dealership or through a private firm. If you can, shop around for the best deal. Do not just assume the offer from the dealer is the best you will be able to get. Several companies focus solely on car finance and it could be well worth your while utilising their expertise. Going to a specialist can save you time and money and once you have made a decision, finance can be arranged immediately. Make sure you know the total amount that you will be borrowing, the repayment terms and any additional benefits of the plan.
Thank you to Louis Rix, Co-Founder and Director of Carfinance247.co.uk for writing this guide.