Car Finance

These days, private car buyers face a bewildering array of financing options. In fact, choosing your finance package can be as tricky and as important as choosing the car itself.

Hire purchase

Hire purchase is a traditional way of buying a car. It’s often arranged by a dealer, but you don’t have to do it that way; you can approach financing companies directly if you wish.

Personal loan

Personal loans are heavily promoted by banks and other financial institutions. Many believe that the attraction of these is that you can get a better deal by offering "cash". This, however is rarely true; dealers and other car sellers make commissions when they arrange finance for you, so they actually have more incentive to give you a good deal if you don’t offer them cash, though that still have more incentive to give you a good deal if you don’t offer them cash, though that still doesn’t automatically mean they actually will.

NEW CAR FINANCE MONEY SAVING TIP

If the manufacturer offers you additional rebates in exchange for you financing through the manufacturer, then you should take their car financing.

Most Commonly used car finances

  Hire purchase

This option is offered on new and used cars by dealers and can be fairly easy to arrange. However, you do not own the car until the final payment, which means you cannot sell it until you have settled up your loan.

 Remortgage

While you may spend the next 20-odd years paying for your car, remortgaging is still the cheapest way to borrow (unless you get interest-free finance – see below). If you are a homeowner, most mortgage companies will allow you to borrow more for other things like car purchase.

  Personal contract purchase

Monthly payments from your bank account are spread out over a pre-defined period (normally 2 – 4 years). At the end of the period, you either make a lump sum payment to purchase the car outright, or you hand it back.

  Interest–free finance

Available from car dealers, interest-free finance is normally for brand new cars only. However, these can be a great way of getting a new car without paying interest on any finance.

  Personal loan

A personal loan can be arranged separately from the purchase of a car, meaning that in the eyes of a dealer, you are a "cash" buyer. Personal loans can be arranged via banks, building societies and finance houses.

  Car loan

This is another name for a personal loan, although you may get additional benefits such as payment "holidays" or a free car inspection prior to purchase.