Buying a new car is a big financial decision.
It will be the highest priced item that you buy after your house. And it will be one of the things that you use every day. So getting your car right and the finance to support will impact you for years.
There are many options available for auto finance. So when choosing your new car, it is a good idea to study each one option available for auto finance in close detail, in order to make an informed choice:
- Trade in for Autos: If you are lucky enough to have a car which is close to the price of the one you want to buy then you might consider simply taking it to the dealer, paying the difference and driving away the new model. This is certainly a quick and easy option, although you should remember that car dealers aim to make a hefty profit on the deal and will not offer you the full market price for your car. Selling yours on the open market and then going to the dealership with the cash safely in the bank is a better, although more time consuming, idea.
- Credit card. Some people simply put the full amount of the car purchase onto their card. This is understandable if you are on a long term 0% interest deal. However, normal credit card rates tend to be substantially higher than loan rates, and it is easy to get stuck in the situation whereby you are simply paying off the minimum each month and never actually reducing the debt. This method is best avoided, unless you have a guaranteed way of quickly paying off the card.
- Personal loan. A loan from a bank or other financial institution is a good option if you want to simply pay a set amount each month and then own the car at the end of it. As long as you pay on time each month there will be no problems, although you should check for early repayment charges, in case you decide to change model before the term expires.
- Dealer loan. Car dealers often offer attractive finance deals. Be sure to compare the offer with what the banks can give before signing. 0% deposit or a low, first year interest rate may be tempting but what you are interested in is how much you will need to pay overall.
- Personal contract purchase. With this type of financing you pay for a few years and then decide whether to pay off the rest of the debt or change to a different model. It is usually offered on a no deposit / low interest rate basis, although the fact that the final sale price is fixed at the outset may mean that you are less liable to ever actually buy the car, depending upon market condition when the term ends.
- Hire Purchase. This is similar to the previous type of financing, in that you pay monthly for a set term and then decide whether to pay of the remainder or give back the car. You are basically using it is a hire car for the initial period of the deal.
The method which is best for you really depends upon your personal preference, how long you intend you intend to keep the car and the current offers available to you. Once you have decided on the car you want and the best way to pay for it you should not forget that you can still refinance the debt if you are offered a better loan deal in the future. If interest rates go down then switching to a new loan may actually work out cheaper and let you pay off the remaining loan quicker.