Everyone wants to buy a car on cash by saving money. However, it is not as easy as the car prices are increasing day by day. One of the primary reasons of the increasing rates of cars is increasing national demand and increasing production of the automotive industry. According to The Guardian report, the number of cars registered in April 2016 was the highest hit in 13 years. The separate car sales figures didn’t fall even after Brexit. Are people saving more money, you ask? The fact is that people are using car-financing options.
Types of Car Financing Options
The car financing options range from government programs to private loans. Some vehicle financing options date back to the Victorian times. Here are the common car financing options.
Personal loan is a type of unsecured loan. The borrowers obtain money from a close relation. Parents can also sponsor their kids for purchasing the cars. There are three benefits of personal loans. Firstly, the borrower gets the car ownership. Secondly, the borrower pays the interest on personal loan. It helps them avoid high interest paid to the private car lenders. Finally, the interest on personal loans is very low as compared to other loans.
However, getting a personal loan is difficult. It is tough to convince someone to lend you money. Furthermore, the borrower and lender may lose their relationship if the borrower fails to repay the money. Therefore, many lenders avoid giving personal loans.
Logbook loans date back to the Victorian times. The Bill of Sale is the primary legal document of a logbook loan. The borrower borrows money from the lender and repays it while using the car. According to the Bill of Sale, the borrower receives the ownership of the vehicle however, the name of owner is transferred only when the borrower repays the loan amount. If the borrower fails to repay the loan within the given term, then there are two options. The borrower can request the lender to extend the repayment tenure. Most of the lenders disagree with this request. The second option is that the lender gets the possession of the vehicle. The lenders are not liable to return the loan repayment to the borrower, and this rule attracts the lenders to the second option. The Department of Business has been taking serious measures in improving the logbook loan operations and providing consumer protection with amendments. Logbook loans are used for all types of vehicles including vans, trucks, cars, and motorcycle.
Personal Contract Private Loan
A personal loan contract is suitable for the people who do not want to keep the car for lifetime. Most of the students and people on low wages use this car financing option. The duration of loan is usually 12–36 months. When the loan term ends, the borrower can use one of these three options.
- Keep the car and pay the remaining price
- Give car to the dealer and pay nothing (the loan repayments will be considered car rent)
- Give car to the dealer in return of another car and start the process all over again The benefit of personal contract private loan is that the car rent is calculated based on its annual mileage. The rent is low if the car mileage is less.
Hire-purchase is one of the safest forms of loan. The borrower gets a car financed with 90% or 100% loan. Some lenders prefer at least 10% down payment as a security. According to the contract, the money paid by the borrower is considered the rent of the car. It is 12–60 months loan contract. The ownership of car is transferred in the name of borrower when the borrower makes complete repayments. The hire-purchase contract for new cars is usually expensive than the used cars. In used cars, the cost of loan depends on the car condition and mileage.
Personal leasing is suitable for people who are worried about car depreciation cost. The vintage car aficionados and students mostly use this car financing option. In personal leasing, the borrower pays a fixed amount of maintenance, servicing, and rental cost to the lender. The lender and borrower fix a mileage milestone. If the borrower drives the car more than the fixed mileage than the lender will receive extra amount. When the loan term finishes, the borrower returns the car to the lender. In personal leasing, the ownership of the car remains with the lender. The car loan tenure is usually 12–36 months.
In personal leasing, the monthly cost of the car is usually high because the lender receives money for the maintenance and services. The borrower will pay a deposit as the security of the vehicle. The deposit is usually around 3 months of the car rental.
The Most Important Rule to Choose Car Financing Option
The rates of private lenders vary. Make sure to compare the rates of all the lenders available in the market. The insurance coverage of your car is the most important element in calculating the car equity, and cost. The most important rule to choose car-financing option is to pick the option that provides you the maximum coverage. For example, if you want to buy your own car without spending time on ownership transfer processing then Hire-Purchase is a good option for you. If you want to get a car now but you are unsure to keep it after three years then choose personal contract private loan. This technique will help you avoid the high cost of insurance coverage.
Shop around to compare the rates. Quiddi Compare has all the best deals for you in town. Visit the website and get more information about getting the best car finance loans.