Many people looking to get a new car will want to explore the finance options available to them. Here’s what you need to know about finance in the world of car dealers.
Using a credit card
For many people, the most obvious way to afford a car without the money upfront is to use their credit card. This option is available to you if you want to buy a car. Of course, it will depend largely on what your credit limit is! But you need to be really confident that you’ll be able to afford all the necessary payments. You are putting quite a direct risk against your credit score. Bear in mind that not all dealers will accept credit cards, and those that do may charge high interest.
Home mortgage
Strange as it may sound, you may actually be able to borrow more from your mortgage to pay for a car. It seems like the obvious solution to many people who have a home mortgage and are looking for a car. Interest rates on this are probably going to be quite low, too. But – and it’s a big but – you’re putting your home at risk if you miss repayments!
Looking into dealer finance
The vast majority of car dealers will offer you finance options. Going down this route is generally more desirable than using a credit card or borrowing more from your mortgage. It’s safer and often requires less of a heavy commitment. Some of the finance options have also been tailored by the car manufacturers themselves. It’s worth speaking to a car dealer in great detail about the finance options available to you. There are usually a lot more options than is made clear. You should also know that using finance options doesn’t mean you can’t haggle a little!
0% APR
You may have heard the term “APR” before without understanding it fully. It stands for annual percentage rate. It’s what dictates the interest rate over a twelve-month period. There will be some APR information applied to all finance options, as it’s generally where the dealers make a little more profit. However, there are many options that are “0% APR”. That means that you don’t pay any interest! This is what you want to look out for. You can even get a new Skoda with 0% APR. Remember: if you miss payments, you may be switched to a finance scheme that includes APR.
Hire purchases
This is the most common type of finance you’re going to find among car dealers. Essentially, the finance is secured against the vehicle. You can drive it out of the lot as soon as the paperwork clears, but the car doesn’t actually legally belong to you. The deposit can be as low as around 10%, but you don’t own the car until the last payment is made.
Personal contract purchases
Personal contract purchases are probably the second-most popular type of finance option. You’ll probably pay a higher deposit than with hire purchasing, but you may also pay lower monthly installments. At the end of the agreed period, you either pay the balloon payment or you return the car. This is seen as more of a short-term option than a long-term one.
