It’s well known that buying a new car isn’t as simple as just walking into a dealership and slapping a wad of cash onto the desk. Most people don’t have close to enough money in their personal savings to buy a car outright, but there are so many options for car finance that it can set your head spinning. Here are the pros and cons of the most common kinds so you can decide which is right for you.
Hire Purchase
A long-term loan secured against the car, so you are effectively renting it from the seller until such time as you have paid off the whole loan. This is a good way to afford newer cars.
Pros: Quick and easy to arrange, flexible repayment periods, low initial investment
Cons: You don’t own the car until after the final repayment, generally more expensive in the long run
Personal Contract Plans
A variant of hire purchase where instead of paying back the value of the car, you pay back the difference between the original value and resale value back to the dealer, and can decide to return the car or pay off the remainder at the end of the (slightly shorter) repayment period.
Pros: All the pros of hire purchase with even lower monthly repayments, flexible in terms of keeping or reselling the car
Cons: More expensive than hire purchase overall, you need to pay the difference to keep the car
Personal Leasing
This is basically renting the car from the dealer long term. Services and maintenance are included in the price so long as you don’t exceed a set mileage.
Pros: Fixed costs, flexible terms, no worries about the car depreciating in value
Cons: You never own the car, higher monthly payments, they often require a large initial deposit
Personal Loans
This is where a bank or another provider lends you a sum of money to be paid back over a set period at a fixed interest rate. You can arrange them in person, online, or over the phone.
Pros: Flexible conditions (amount, repayment schedule, etc.), can be the cheapest way to borrow if you have good credit
Cons: May affect your credit rating, there can be a wait for funds to become available
With this knowledge you should be able to pick the option that serves you best.
