The many roads to car finance

Wed, 26 Jul 2006



The most important part of buying a new car can be choosing the best finance option with which to pay for it. Numerous types of payment plan exist, and depending on your individual situation, some may be more suitable than others. These include cash, a personal loan, credit card, contract hire, hire purchase and PCP.

Cash is arguably the easiest way, but be aware that no official transaction record exists beyond the car dealer’s receipt – perhaps processing your deposit by credit card could be a good idea. Personal loans through a bank or building society mean monthly repayments with interest . The personal loan market is extremely competitive, and as far as the car dealer is concerned you are paying in cash. Credit Card finance has low interest rates, especially with introductory periods, but be aware of paying off the balance .

Leasing your car is popular, with monthly instalments covering your car but never owning it. When leasing, check warranty periods and remember that the car is not yours. With Hire Purchase (HP), expect to pay higher interest rates, and remember that the provider owns the car until you pay off the full amount. However, HP is generally considered the best alternative to cash.

Finally, Personal Contract Purchase (PCP) allows you to buy the car with a deposit, with three options at the end of the contract – buying the car, exchanging the car, or giving the car back. Keep an eye on MGFV (Minimum Guaranteed Future Value) that determines how much you would have to pay off at the end of the agreement to own the car.
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