Whenever the time comes to looking for a new car, one of the first thoughts you’ll have is not which car it is that you need, but how you’re actually going to afford it.
Often it is your circumstances that will determine how you finance your new purchase, but if you’re not entirely sure of the options that are available, take a look through the following 4 popular ways to purchase a new car.
1. Cash – no matter which way you look at it, if you can afford to pay cash for your car and you want to keep the car for a period greater than 5 years, this is almost always the best and most financially beneficial way to purchase a car.
Removing the various additional costs that you might incur if paying by other means, most notably the interest on any type of finance package you take out, paying by cash also means that the car is completely yours and there’s no chance that, for instance, a finance company can take it off you if you don’t keep up with payments.
2. Bank loan – a popular option for some, especially if they can secure a low rate loan with their own bank, bank loans are a good option if you’ve got a set amount of cash that you want to put down and / or have a set amount of time that you want to pay for the car over.
For example, if the car costs 20,000 pounds, you had 5,000 pounds to put down first and wanted to pay the car over 3 and a half years, this is all possible. However, there are different types of loans – secured loans and unsecured loans. A secured loan is one in which the bank will want he loan to attach to a physical asset such as the car that you are buying or your home. An unsecured loan is one that attaches to the person (not an asset) and these typically have limits of around 5,000 pounds but never more than 15,000 pounds.
The difference between the two variations is that if you default on a secured loan the bank can repossess the asset (eg; the car, or force a sale on your house) whilst if you have an unsecured loan and default on it the bank will take action against you directly which could end in bankruptcy proceedings if you do not make the payments.
3. Car finance – one of the most common (65% of all car finance) and easiest options to choose when purchasing a car is to use the car finance package that the dealership offers.
The reason behind this is that it’s low rate lease purchase very often the option that is the most hassle fee and can be completed in a matter of minutes.
Compare the dealership’s car finance package to alternatives such as a bank loan, for example. Whilst you’d have to make an appointment at the bank, explain what it was that you’re wanting to buy, how much money you require and then waiting for the bank to make a decision and put the money into your account which could take several days, a dealership’s car finance package can be arranged after simply taking some basic financial details and then completed in less than 15 minutes.
4. Car leasing – something that was once restricted to business customers, car leasing has seen a resurgence in popularity in recent years, as more and more people are looking to upgrade their cars more regularly, because it can be as much as 50% cheaper than buying a car using loan finance. There are different types of car leasing with some forms such as personal contract purchase (PCP) allowing you to buy the car at the end of the lease contract.