Getting a new car is very exciting but arranging the finance deal for it is much less fun. In fact, it can be downright baffling with all the different options that can be thrown at you. So how do you go about getting the best deal for your car financing?
Should you pay cash or go with hire purchase?
Whether you are buying a big executive car or are searching for a little hot hatchback, the general payment options are the same – you either pay for the car in full or put it on credit, called hire purchase.
Paying for a car in full, in cash is great if you have the facility but if you are considering using your savings, pause for a moment. Review your finances and look at the worst case scenario – have you got enough savings left to deal with a number of emergencies if you pay for the car all at once? If the answer is no, then paying in cash might not be the best idea.
Some people choose to pay for the car by their credit card and then pay interest on this. Check your interest rate versus the APR on the hire purchase agreement to see if this is the best idea. Also avoid maxing out your credit cards as this isn’t good for your credit score or for emergencies than a credit card might be required for.
Understanding hire purchase
If the last option, hire purchase, looks to be the right one for you, there are still options available. Hire purchase is where you secure the money against the car itself so if you don’t pay back the loan, the car can be repossessed to pay off the debt. Normally, you pay a deposit and the rest is spread over a period of time. At the end of this period, when the loan is paid off, you own the car outright.
Another option can be to take a personal loan to buy the car. In this case, the car isn’t secured against the loan and if you don’t pay it, the company may not try to repossess the car. Usually, these loans are only available for those with good credit ratings but may offer a lower APR than hire purchase, meaning you pay less interest over the term.
Getting the best deal
Shop around for your HP deal rather than simply accepting the first one you are offered. A car dealer may try to persuade you to go with their own finance deal but you should ensure it is the right one before agreeing to this. Look at the APR or annual percentage rate to see how much you are going to pay for the money you are lending.
Look into the future a little and consider what might happen. If the payments are low but there is a high cost for paying off the loan early, this might not be ideal if you have savings you want to use against the loan at some stage. Also lower payments often mean more interest so consider how much you can afford to pay monthly versus the savings made long term.