There are many options available for individuals financing the purchase of a car. Buyers should investigate the choices carefully before going shopping for a vehicle. The car dealer is likely to offer finance, but it might not always be the best option for you. Even if you do accept dealer finance, you will be better placed to negotiate the best possible deal if you are informed about the alternatives.
Specialist financiers, like Fincar, can help you assess the options to find the one best suited to your needs.
strong>Hire purchase is a popular financing option. Under a hire purchase agreement, the financier buys the vehicle and retains legal ownership until you have paid for it in full. You pay for the vehicle in installments over the period of the agreement, and you are permitted to use the vehicle while paying it off. You can choose to pay a deposit. Terms are variable, and you can choose to pay a residual payment at the end of the agreement. Title to the vehicle transfers to you as soon as you pay the final payment.
A personal finance lease is similar to a hire purchase in many ways. The financier retains title to the vehicle and you make regular payments. The difference is that a hire purchase agreement is specifically designed to allow you to acquire ownership over a period of time, and payments of principal and interest progress you steadily to that goal. Under a lease agreement, you pay to use the vehicle until the end of the lease. At lease termination, you may be permitted to buy the vehicle from the financier, or the financier may retain ownership and sell it to someone else.
You can elect to take a chattel mortgage, which is not unlike a house mortgage. You own the vehicle but the financier’s interests are secured by a mortgage over it. As with many other financing agreements, you can choose to have a balloon payment as the first or the final payment. Chattel mortgages are more commonly offered when cars are purchased for business use.
Many buyers overlook the option of credit card finance for large purchases, but a credit card may be an excellent financing alternative for a low value used car. Credit cards may offer flexible and easy to access finance. You can accrue substantial points on a rewards or frequent flyer programs. You avoid loan application fees. Unless you have a low rate card, interest rates may be high. The dealer may impose a credit card surcharge, though you can sometimes avoid that drawback by taking a cash advance on your card. That also positions you to negotiate a cash discount on your purchase. The flexibility of credit cards can be a disadvantage for undisciplined borrowers, so be sure to plan carefully and make regular payments.
Banks and credit unions offer personal loans for car purchases. You borrow a fixed sum to buy the car, and repay it, with interest, over a specified period. These loans are generally unsecured, so you own the vehicle outright from the date of purchase and the lender has no specific claim over it, even if you default. Personal loan interest is higher than many other types of loan, but loans are usually easy to access. You may be offered the option to post some security, and doing so can reduce the interest rate charged.
Many lenders also offer a secured car loan, which is similar to a personal loan except that the financier takes security over the vehicle to protect his interests. If you default, the lender will come and take your car! Lower rates of interest are offered on car loans for new cards purchased from a dealer. If you are buying a used car, there may be a requirement to purchase a car less than seven years old, and the lender may insist that the car be priced within a specified range.
For those with a home mortgage, the cheapest option may be to extend your home loan to cover the cost of a car. If your loan has a redraw facility, this can be an appealing and comparatively inexpensive way to finance a vehicle purchase.
Employees should consider discussing a novated lease arrangement with their employer. Similar to a normal lease, a novated lease lets you salary sacrifice and have your employer pay lease payments. There can be significant tax advantages.