Best Tips for Financing a New Car
If you want to buy a new car, there are some financing tips that can help you get the best possible deal. This is probably one of the biggest purchases you will make in your life, so it just makes sense to take a cautious approach. There are numerous expenses associated with buying a car, and it can get very expensive very fast. The method you choose for financing your new car will ultimately determine how much you pay and how smoothly the entire process goes.
Cash vs. Savings
It is always better to use cash when buying a car, even if it is just for the initial deposit. Make sure that you put down at least 15-20% on your car so that you can get the lowest possible interest rate. You might always want to consider dipping into your savings.
You need to make certain that you have enough money set aside after you have purchased your car in case any repairs need to be done. This is especially important to consider if you are going to buy a used car. Take some time to sit down and determine whether or not you can afford to use some of your savings to buy a car. The last thing you want is to be stuck in a bad financial situation soon after everything is wrapped up.
Get a Personal Loan
A lot of people get a personal loan to pay for a new or used car. This can be a very effective financing solution, but there are a few things to keep in mind. If you successfully pay off the loan, your credit will improve dramatically. Those who don’t already have good credit can still likely get a loan, but their interest rate will be significantly higher.
The best thing you can do is to spend some time shopping around with different lenders so that you can get the lowest possible interest rate. A credit union is a good place to go for a personal loan, as they tend to offer the best deals.
These days getting a personal loan can be done fairly quickly and easily online. This means that you won’t even need to leave your home to get the loan you need. If you already have a loan that you are paying off, there is a chance that you might not be approved for another one. Look at your credit rating to see what it is like before you start applying for a personal loan.
Hire Purchase
Another option you have when it comes to financing a car is hire purchase. This option will require you to pay at least 10% of the total purchase value of the car up front. You will then have to make payments each month at a fixed rate over a certain period of time.
Setting up a hire purchase agreement is typically a fast and easy process, as it is done entirely through the dealer. This is a good option to explore if you don’t have a lot of money to put down on a new car. The repayment periods for hire purchase loans range from a year to four years on average.
It is important to keep in mind that you will not actually own the car until you have made your last payment on it. This can cost you more than other financing options. Because you will have a longer term, you will end up paying more interest overall.
Personal Contract Purchase
A personal contract purchase or PCP can help you save money in the long term because you most likely won’t have to pay as much interest. You will receive a loan that covers the difference of the vehicle’s brand new value and what it will be worth at the end of the loan term.
This option is a good idea for numerous reasons, including the fact that you can choose to trade the car in when the agreement period is over. You can also choose to make a lump sum payment and keep the vehicle if you want. Most people who choose this financing option get lower monthly payments and don’t have to put down as much.
One of the drawbacks to personal contract purchase is that you will need to pay extra if you go over the agreed upon mileage limit. There is also a chance that you could spend more than with hire purchase by the end.
Final Thoughts
Before you decide on a certain method of financing a new car, it is important that you examine each of these options closely. You should try to use some of your savings to buy the car if you are able to. Those who don’t want to put down a big deposit should consider hire purchase or personal contract purchase.