Buying a car, whether that is your first car
or the next family car usually involves a lot of money. In fact, buying a car
is usually a person’s biggest purchase other than buying property. However, a
car purchase can be a stressful experience if you are not familiar with the
pitfalls of funding this.
When considering financing, for a car purchase
you should think about the following:
- Funding
- Credit Status
- Hire Purchase
- Zero Financing
- Personal loans
- Circumstances
Funding
The days when someone would save up for the car
are long gone and for the vast majority of us borrowing money is the only way
to finance a car purchase. This inevitably involves car finance and the range
of options available can be confusing to those new to loans and financing.
Credit Status
Car finance is
heavily reliant on your credit standing, which, unfortunately, means you are
either refused credit or restricted to a higher annual percentage rate.
However, for those who pass the credit check they are then offered a range of car
financing options.
Hire Purchase
Often, your first option
is Hire Purchase or HP. Traditionally, you will be asked to provide an initial
deposit and then make an agreement to pay the remainder of the balance in
instalments over a period time, usually over 12, 24, 36 or 48 months.
It is worth noting
that when using hire purchase agreements you will usually be restricted to the
one and only financing company the car dealership has an agreement with. Also,
the longer you take to repay, the higher the interest rate will be, so you will
pay more over longer periods.
Zero Financing
Some auto financing companies, especially those who supply specific car companies, may provide you a zero financing package. This typically involves you paying a larger deposit which can be as high as 50% of the purchase price and then you make regular payments as with any HP agreement.
When dealing with
a hire purchase agreement it is very essential to note that should you fall
behind with your payments the investment company can (at their own discretion) recover
the car.
Personal Loans
Your second choice
to finance your car purchase is a personal loan. This type of financing gives
you the benefit of a wide array of loan provider’s competing for your business,
which means you can get a highly competitive deal. A further advantage of using
a personal loan is that there are many comparison websites that will seek to find
you the best deal available.
There are
two main advantages of using a personal loan over a hire purchase agreement.
Firstly, a personal loan application can be completed, and the money can be in
the bank before you buy the car. Whereas a hire purchase contract will be for a
specific car once you have found it and so can restrict your ability to
negotiate, secondly, a personal loan gives you more options and a variety of different
providers, which guarantees that, you are getting the best available deal. However,
as mentioned before, a hire purchase agreement is usually provided by a single
provider in an exclusive agreement with the car dealership, so your options are
vastly reduced.
Circumstances
When
purchasing a car through financing you have a number of options, however, it is
necessary to consider your needs and budget before committing to a specific
funding strategy. Each has its own advantages; however, one will suit you and
your financial circumstances more than the other.
About the
Author-
As the
founder of http://fincar.com.au/, David Lye
has a passion for cars and shares his knowledge of car financing with those new
to funding a car purchase.
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