The BBC report of January 2016 states that the number of cars on the UK roads has increased by 600,000 in just a year. In 2015 alone, the automotive manufacturing industry made 6.3% more cars, a total of 2.63 million cars, revealed The Society of Motor Manufacturers and Traders. The use of buses has decreased by two-third in recent years. The Department for Transport has revealed the statistics that there is at least one car for very two people in five out of nine English regions.
The numbers are not surprising as the Consumer Rights Act 2015 provides sufficient rights to consumers, including car buyers. According to the law, the car buyers can reject a car within 30 days of purchase.
Considering the flexible laws for consumers, this might be a good time to get a new car. If you are worried about car finance then read this guide until the end, and voila!
Different Types of Financing Options
The car dealer will offer you the following three types of financing options.
Personal Contract Purchase
In Personal Contract Purchase, the car buyer pays a down payment. The remaining money is paid in instalments for a fixed period, according to the contract. After the completion of that time, the buyer will pay the remaining money as full lump sum payment. Some buyers sell the vehicle to pay the remaining money. This contract type is more useful for students and single mothers.
In Hire Purchase Contract, the buyers pay a little down payment, mostly 10% only. The dealer owns the car. The buyer becomes the owner only after making the full payment. The buyer cannot resell the car before making the full payment.
Personal Leasing Contract
In personal leasing contract, the car buyer makes a small down payment. The instalments are also usually lower than other types of contracts. The buyer may pay the instalments monthly or after every three months. This type of contract is more suitable for people who want to exchange the car after sometime. You can even exchange the car through the same dealer. The dealer will evaluate the payments and mileage of the car and exchange it accordingly.
The best way to buy a car along with its ownership is to purchase it directly in exchange of cash. No down payments, no instalments, no hassles. However, this option may not suit the financial condition of majority of people. Other options of independent financing include personal loan, loan on credit card, and P2P lending.
In personal loan, you can borrow the money from a lender or the bank. You can purchase the car and make loan repayments. However, the lenders provide these loans after evaluating your credit report and using the car as collateral. This means that if you fail to make the repayments, the lender may take over your car.
The second one is credit loan. This type of loan is mostly safer than other loans. However, it has huge impact on your credit report. You may lose tens of points on your credit report only by missing one repayment, so be careful.
The third one is peer-to-peer lending. In this type of loan, you can borrow money from a loved one. The benefit of P2P lending is that you can request for extension in loan repayment. The interest is also lower. P2P Lending is also safer option, especially if you are a student or in the beginning years of your career.
People also take another rare type of loan i.e. mortgage. They use their home equity as collateral to take loan for financing their car. Mortgages are also safer but they have huge impact on your credit score. Furthermore, if you fail to repay the loan after legal notice, you will lose your home because you put your home as collateral.
Important Tips for Car Financing
The increasing number of cars on the roads is also evident of the fact that buyers and sellers are sharing a mutual consent. This means that the room for negotiation is open. In car financing, research and negotiation are the keys to file a right deal.
- Begin by understanding the rates. Your dealer may charge you low down payment and low instalments with high interest. When you pay the capital instead of interest, the interest adds in the capital. This way, the new interest is applied on new capital. This technique is useful for building a diverse portfolio in buy-to-let real estate but it is not very useful in car financing for personal use.
- Many people bargain on monthly instalments, an end up paying higher amounts. You should always bargain on Annual Percentage Rate for car financing. The monthly instalment will be reduced by reducing APR.
- Look around. Compare the rates and seek advice. Some dealers offer similar brands at lower rates. Some dealers offer lucrative deals in exchange of high down payment. You have to find the most suitable option in the market.
- Have a look at your options and compare your options with all of the car financing options available in the market. Choose an option, which will benefit you in the long-term.
- Don’t take pressure. Don’t take stress. Compare and calculate your numbers. If you are married or live with a partner then include them in your financial decision. For further advice, ideas, and understanding, visit Quiddi Compare. You can compare the rates of car financing dealers at our website along with other financing options of mortgages, credit cards, short-term loans, long-term loans, and more.