Buying a car is one of the biggest investments in an individual’s life. Acquiring the funds for the purchase of the car is common this days and more so if the car in question is of any significant value. For most of the prospective car owners, purchasing a brand new or even second hand car by paying cash is not an easy option. Different car finance options are now available and this has enabled many to buy and own cars which they could ordinarily have not been able to.
Although you may have the savings or the ability to buy the car out rightly, it’s still more prudent sometimes to consider financing the purchase of your car. This allows you to release the money in bits, in a controlled way which in turn reduces the burden on your pocket. The car finance sector has grown big and therefore there are few things that prospective car owners are supposed to be aware of in order get the right financial partners.
The dealership is the most convenient way of financing a car purchase. Dealers are capable of offering a number of viable finance options that can aid you purchase your next car. Anyone therefore with the thought of purchasing a car on finance should ensure that they select the right deal for their own individual situations. These kinds of financial deals could deal a blow to your finances in terms of repayment and therefore one should be realistic enough before committing to such deals. The car dealers are much after the commission they get from the sale therefore great care should be taken so that this does not end up costing you more.
On the other hand, obtaining finance through a bank or financial institution like building societies has less pressure but you get less support and after sale care. One of the ways of funding car purchase is obtaining a personal loan just the way you would do with any other purchase and using the money to pay for the cars in full. The advantage is that the car immediately becomes fully yours. The loan is repaid monthly with interest rates set by the lending institution. Obtaining this kind of loan is however not easy with most institutions. There are a number of factors that actually determine whether you get approved for a loan. One of this is your credit score. The lower your rating, the worse it becomes and the higher you will pay back to the lender as the rate will be increased.
The other factor that affects the interest rate is the term – the period within which the loan is to be paid back. Normally, the shorter the period, the lower the rate is. Buyers are discouraged from purchasing cars with very little or no deposit as this will increase the amount one pays during each installment. If sometime down the line you are unable to pay the monthly installments or you no longer want the car, you can sell the car and settle the dealership or hand it directly to the dealers. Also see: Methods of financing.
Methods of Financing
Many forms of car financing exist. Selecting the best one that fits your needs will make life easier when it comes to paying off your car balance. Some forms of financing are listed below.
Hire Purchase
Hire purchase is a way you could finance the purchase of your car that has been used from time in memorial. In this method, you pay a deposit (normally 10%-20%) followed by monthly payments similar to those in personal loan. Compared to personal loan, hire purchase is cheaper and easier to obtain. However in hire purchase you never really get to own the car until you finish paying the last installment. This essentially means that the car still belongs to the purchase firm and could be repossessed in case you fail to make your payments.
Car Leasing
Car leasing is another form of car financing which allows you to rent a car for a specified duration of time whereby you pay a set amount of money per month during the leasing period. It’s similar to the car rental agencies only that in this case the time period is much longer. The good thing about car leasing is that you may decide to buy the car after the leasing period has elapsed or you may return it and get a new one. It is more affordable to lease a car than to buy one and it is convenient if you have found a car that is a little more than the amount you will paying monthly for your personal auto loan.
Personal Contract Hire
Personal contract hire is another way you could finance your car purchase. Here you pay a set monthly charge according to the approximated mileage over a specified period of time. At the end of this period, the vehicle is handed over with no other charges except for excess mileage and wear and tear costs. The main advantage of personal contract hire is the low starting cost required, and the low monthly costs compared to hire purchase and personal loan.
Business Contract Hire
Business contract hire is also an option one could consider to finance car purchase. This method works in a similar manner with personal contract hire. A fixed monthly charge is imposed on the company upon the duration of the contract, the age of the car and the mileage which the car will be covering. However you do not receive full ownership of the car as it is handed over at the end of the contract. The merits of this scheme is that it brings with it decrease tax charges.
If you are using your car for both individual and business purposes, then is possible to reclaim up to 50% of VAT on the letting finance and up to 100% on the maintenance fee. The fact that you pay maintenance cost every month means that there is a reduced amount of load in the management of the cars.
Once you obtain full ownership of the car you need to obtain license plates and a title for your car. This can be done at the local revenue offices. Registration of the car is not allowed until you obtain an insurance certificate. The car dealer might want to help in this as well.