There are many different options when you begin looking at car financing, thus allows you to choose for whatever is best for you without having to worry about going out of budget.Reading Time: 4 minutes
What is car financing?
Car finance refers to the various financial products which allow someone to acquire a car, including car loans and leases.
There are a few options when you begin researching car financing
- Hire purchase
- Personal contract purchase
- Personal loan
Apply for an online car finance application on Aim Motors website for any car and get an instant decision on your finance application.
1. Hire purchase (HP)
This is the one in which the total cost of the user or the new car is spread over a few months to fixed amounts. Once you’ve paid all the monthly bills, the car is yours to keep. The best part is that there’s no extra huge amount to be paid at the end.
However, if you compare it to PCP then you could be paying a higher amount but less interest rate.
The best way to reduce the amount that you pay every month is by giving a larger amount in the beginning or extending the deal to a longer time period.
Another benefit is that since you’ll be owning the car at the end if you pay all the payments on time, so you won’t have to worry about additional payments if your mileage exceeds or the car is damaged.
The reason that the cost is higher than PCP is that this will cover the entire price of the car. However, you can’t sell the car till the end because you won’t be the legal owner till you’ve given every single penny to the company.
There are some things you’ll have to keep in mind like the fact that by the time your deal ends, the car would be worth lesser than what you had paid which would appear as a shock to you. But since you’ll be the legal owner, you’ll be the one facing the loss. The same would be the case if the car value has increased then you’d be in all profits if you choose to sell it or trade it for a better car.
2. Personal contract purchase
This finance deal offers you lower monthly payments at the termination of the agreement. Due to its many different features, it attracts a lot of customers and drivers. It has very large discounts and incentives which makes it affordable to change your car or upgrade every now and then or a few years. This is not only popular in new cars as well as old cars.
They provide you with good flexibility in means of how long you want the contract to be, the mileage limit, or how much you want to deposit at the beginning of the contract depending upon what you can afford. You could even opt for paying nothing at the start keeping in mind that this will have a great impact on your monthly payments.
In this finance coverage, the monthly bills are low because they don’t cover the entire revenue of the car, but rather the approximate price that would fall over the period of the contract. This also calculates the optional final payments that you would have to pay if you choose to keep the car or you could return it with no additional payments, of course knowing that you caused damage to the car or exceeded the mileage limit. The good part about this is that sometimes your car could be worth more than what you are paying at the end of the contract. Now it is up to you if you want to trade the car for a better car which would reduce what you will be paying for the next payments.
If you compare it to leasing then you will be paying a little more for the different facilities you will be provided with.
You will be charged an extra amount if you return the car damaged or with an exceeded mileage limit.
This is the best option to opt for when you don’t want to buy the car but have all the relaxants that come with having a car. So what you are basically doing is that you are hiring the car for a given amount of time with a fixed rate of the monthly payment.
This also allows you to drive new cars in cheaper ways and fulfill your dreams of driving different cars. There are a lot of deals that are available on recent cars. However, they could require you to pay a deposit at the start.
When your agreement has ended, you will return the car with no other option. There is no chance to buy the car no matter how much you like it. However, you could choose to lease it again.
4. Personal loan
This is the best way to own a car from the very start. If you choose to take a personal loan from the bank or anywhere to buy the car, then you will be the legal owner of the car. You will not be answerable for any changes you make in the car such as big exhaust or tinted windows if that’s what you prefer. You can choose to sell the car whenever you want if you are not able to return the monthly bills to return the loan.
There is a lot of competition in car financing so you could get a very good rate of interest. You have to keep in mind that if you have an unsecured loan, you will be facing higher interest rates than the other car financing options. This could also limit you to take any further loans or credit. Since you will be paying the entire cost of the cars in the beginning, it will subject you to pay higher monthly bills as compared to PCP finance or leasing given that you have more flexibility.
After looking at all the provided options look at what will support you and be more affordable for you. It is not important to be influenced by others because everyone has different set goals and budgets.