The high cost of buying a new car can scare away many consumers, however there are several new car financing options available that may make purchasing your dream car more affordable than you think. Below is a list of the five most common methods for financing a new car you should consider before shopping around. Personal loan:
With a personal loan you borrow money from a financial institution such as a bank or credit union. Once you have organized your loan and purchased the vehicle, you become the owner and are responsible for paying back the lender. There are two types of personal auto loans: secured and unsecured. Secured loans require you to put down a form of collateral such as your house in case you fail to make your payments. Secured loans carry lower interest rates but you risk losing your personal property. If you are unsure about your ability to repay your loan, then you should go for an unsecured loan, as you only risk losing your car if you fail to make payments. One big advantage of opting for a personal loan is that you know your spending limit before you start shopping for a car. Hire purchase:
A hire purchase involves an agreement between you and the auto dealer. The buyer is required to pay a down payment, usually between 10 and 20 percent of the total price with monthly payments being set based on the remaining principle. With this type of financing the vehicle is owned by the dealership until all the money is paid off. Remortgage:
Remortgage auto loans are specifically designed for home owners. This method requires the borrower to remortgage his or her home and use the extra money to purchase a new car. Although you will be making car payments for the duration of the home mortgage, this option is typically less expensive and allows you to consolidate your home and car debts into one payment.
Personal contract purchase:
A personal contract purchase is another agreement between the buyer and a bank or credit union. Monthly payments are taken directly from the buyers bank account for a specified duration, 2 to 4 years. Once the term is up, the borrower has the option to either purchase the car or return it without any obligation. If you go for a personal contract purchase and you want to buy the car, do your own independent used car evaluations to make sure the asking price is fair.
Interest-free finance is exactly what it sounds like. You buy a new car at the sticker price and make monthly payments without interest. This can be a good option if you do your research and find a good deal, but you must be aware that new car pricing at dealerships is significantly higher than the invoice price. Although you won’t pay any interest, you may end up saving money if you choose a different option and negotiate a lower buying price. There are many options available to you when financing a new car. Which option is the best depends on many variables including your credit score, disposable income, and the make and model of the car you are trying to buy. Do your homework thoroughly, and keep these five options in mind before committing to a financing plan.