These days you can buy a new car via the Internet, at a car supermarket, privately, abroad, or at local dealerships, and there are just as many options available when you want to finance the purchase. So how do you decide what is best for you? York Trading Standards offers the following advice.
Cash
The simplest way, but check for interest-free deals, so you can bank your savings and earn interest during the interest-free period of the deal.
Bank finance
Obtain quotes from your bank or building society as interest rates vary widely, depending on the amount you borrow and the period of the loan.
If you have a large limit on your credit card you can finance your purchase this way. However, remember interest rates may not be competitive.
Car purchase loan
You borrow the full cost of the car, but instead of paying off the full amount during the agreed period, you defer a lump sum until the end of the loan. At the end of the scheme, you can pay off the lump sum and keep the car, take out another loan, or sell the car to repay the loan.
Dealer finance
You will normally have to pay an arrangement fee at the beginning of the agreement plus an 'option to purchase' fee at the end.
Hire purchase
A traditional way of financing a car through a dealer. Remember you don't own the car until you've made the final payment, and if you don't keep up the payments the car could be repossessed.
Personal contract purchase (PCP) Like car purchase loans - instead of paying off the full amount of the car, you defer a lump sum until the end of the contract. You do not own the car during the repayment period. However, unlike car purchase loans, the finance company will, subject to mileage restrictions and the car being in good condition, guarantee that the car will be worth at least this lump sum. This is called the minimum guaranteed future value (MGFV). At the end of the repayment period you can give the car back to cover the MGFV, pay off the MGFV and keep the car, or (with the company's permission) sell the car privately or to a dealer and pay off the lump sum. This can be an expensive option so check costs carefully.
Lease purchase
Similar to a PCP - a lump sum is deferred until the end of the agreement, but the finance company does not guarantee the value of the car.
Personal leasing plan
Leasing is mainly aimed at business users. You will never own the car, and make monthly payments to use the car for a fixed period. Some leasing agreements cover servicing and other charges.
Remember:
- Check the total cost of the finance.
- Check the monthly payment and the period of the loan.
- Check whether the deal includes payment protection and if you want the cover.
- Check the APR. Generally the lower the APR, the better the deal.
- Check if the dealer will negotiate on the deal
- Insist on a written quote.
Updated: 08:49 Thursday, January 24, 2002
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