Making the decision to purchase a new car is an exciting one. After browsing online, choosing the car of your dreams and picking out all of the optional extras that you’re going to need, there’s the small matter of finding the best way to finance it.
With this in mind, we’ve put together this list of 5 different ways that you can finance your car; it’s not comprehensive, but should get the juices flowing and give you a nudge in the right direction.
In an ideal world, any new car purchase would be made with cash; it’s simple, effective and it incurs no additional interest charges. Getting the amount of cash together required to buy a new car, however, is a real challenge.
If you’re intent on minimising the cost of your new car, part-exchanging your old car is an absolute must; this should give you a solid foundation from which to build. From there, it’s time to raid your current and savings accounts and your ISA.
Deciding to pay cash for your car could save you thousands of pounds in unnecessary interest, while current low interest rates often mean that you make minimal gains from your savings anyway. Essentially, it’s about determining your priorities and weighing up where you deem that your money is best utilised.
2. Hire purchase
If you’re someone who likes to change cars regularly, a hire purchase agreement with your dealer could be an excellent option. The arrangement requires you to place a relatively small deposit down on your new car, which is supplemented by a monthly repayment plan.
You are essentially hiring the car over a fixed term, with a reassessment at the halfway point. At said point of the arrangement, you are able to make the decision over whether you would like to continue with the monthly repayment plan, with a view to eventually owning the car, or whether you would like to simply walk away.
Those who are considering a hire purchase arrangement may also like to consider the very real option of leasing their new car. While leasing doesn’t give you the option to take ownership of the car in the long term per se, it does give you a manageable means of securing a car that may otherwise be out of your price range.
4. Take out a loan
Taking out a loan is the most traditional means of paying for a new car. Instead of taking the loan arrangement offered by your car dealer, which are often bloated with unnecessary fees, there are a wide range of flexible car loan solutions for the UK market.
Rather than having to scour the Yellow Pages for prospective lenders, the internet is awash with reputable car loan comparison sites, which analyse the rates of the market’s top lenders in a matter of seconds.
5. Credit card
It’s a less common means of funding a new car purchase, but shouldn’t be ruled out, especially if you have an excellent credit rating. Many credit card companies offer interest-free introductory periods, often for in excess of 12 months. If you have an excellent credit rating, and think you’re going to be able to pay off your car within 12 to 18 months, an interest-free credit card is, therefore, a very viable option for financing your new purchase.
In addition to offering you a little breathing room and a means of repaying the cost of your car over a manageable period, some credit card providers also offer rewards programmes, such as air miles or cash back, on purchases, which means that you also earn while you spend.
Choosing the option that’s right for you
When it comes to financing your new car, your decision should be made following an honest and open analysis of your unique financial position. Some of the options that we’ve discussed, for example, will not be available to all consumers, owing to credit score complications.
However you choose to finance your new car, your biggest concern should be that you are able to meet the monthly repayments, on time, as failure to do so could have extremely painful cost implications.