If you’re looking to buy a new car, but don’t necessarily have enough funds to pay for it, then you’re going to need to secure some sort of car financing. Car financing is borrowing money from your bank or financial institution so you can cover all of the fees and expenses needed in purchasing a car. Here are two steps to help you buy your dream car.
Only get what you can afford
The first step is to create a breakdown of cars that you can afford. If you want to borrow money from your bank, it is best that you only borrow what you need. If you can afford to pay for the majority of the vehicle yourself and you are okay with paying a large deposit, then do it. Borrowing a loan to cover the full cost of the car is risky, and it will cost you hundreds and even thousands in interest in the long run. Think about how long you want to repay the loan over and how much you’re going to pay each month. If you’re after a low monthly payment, you may be paying it off over an extended period, and you’ll have more to pay in the final months.
Know all of the options you have
The second step is considering all of your options or the options offered to you. There are usually three primary forms of finance available for you: conditional sale, personal contract purchase, and personal lease.
- The conditional sale is also commonly known as HP. With this option, you pay a deposit upfront for the car. The balance plus interest and charges are repaid in equal amounts each month until you have paid for the whole thing. Once the final payment is made, the car belongs to you. Manufacturers or dealerships now offer a no deposit car financeoption through the conditional sale. You don’t have to pay any deposit upfront, and you can leave the dealership with a brand new car.
- The personal contract purchase is quite similar to hire purchase (HP). With this method, you pay a deposit, usually around 10% plus an agreed number of fixed monthly payments. The main difference is that the lender predicts what the car will be worth at the end of your agreement, and you only repay the capital difference between the two, with interest. You’re only financing a portion of your car, so your monthly payments tend to be lower at the end of your agreement.
- The last option will be a personal contract or personal lease. With a personal lease, you don’t technically own the car. Instead, you rent it long-term until the end of the agreement and then simply return it to the dealer, swapping it for a new one.
Always consider how long you plan to have the car before signing any of agreement. When you have found a great deal that you like, look at the amount of credit charged throughout the loan. Keeping these points in mind will save you from owing a massive debt.
