4 Ways to Finance a Car: Best Options to Consider and Methods to Avoid
There are a lot of ways to finance a new car. The different options available in the market will help the average car buyer make a decision on how to properly procure the car of his or her dreams.
People with bad credit are presented with ways on how to avail a new or used car through different car loans or dealership auto loans at a slightly higher interest rates. The ideal financing scheme should be light on the pocket and oriented towards the lifestyle of the buyer. The best options to consider are as follows:
1. Financing through a Personal Loan
It is possible to avail a personal loan and use the proceeds to pay the seller of the car in full. The loan amount is then paid in monthly installments with a fixed interest rate applied throughout the life of the loan. Take note that not all personal loans entitle a fixed interest rate and should be properly studied prior to signing the dotted line.
The advantage of getting a personal loan is instant car ownership. Since the car is paid in full then you instantly gain ownership of the car. The downside is that personal loans can be hard to avail as a high credit score is the first prerequisite when applying for such a loan.
2. Financing through Hire Purchase Plans
A hire purchase plan is regarded as the traditional way to finance a new car purchase. This entails the buyer to pay a nominal deposit of 10% to 20% of the suggested retail price of the car and is accompanied by monthly payments similar to a personal loan.
A hire purchase plan is cheaper and easier to obtain than an equivalent personal loan but remember that under a hire purchase agreement, you are technically not the owner of the car until the last monthly payment has been made. You would also have to be up to date with your monthly payments to avoid repossession of the vehicle.
3. Financing through Personal Contract Hire
People who have a habit of changing their car every two or three years are better off with a personal contract hire financing scheme. Be aware that this kind of plan negates the actual ownership process as you only have to pay a fixed monthly rental amount based on estimated mileage over a period of time. This type of financing scheme may come with low monthly payments but again, you will never get to actually own the car under this agreement.
4. Financing through Business Contract Hire
This type of financing scheme is similar to a personal contract hire wherein the company is charged with a fixed monthly amount based on the estimated mileage the car will acquire, age of the car and length of the contract. The vehicle is then handed back at the end of the term.
A business contract hire is best used for tax purposes as it makes it possible to claim up to 100% of the total VAT cost if the car is being used for business purposes alone. Other laws and rules may apply.