Acquiring a new vehicle, whether a used model or a brand new car, is very impressive indeed: However, you may not be in the position to fund the purchase a new car by yourself. If in such a situation, where you cannot afford to fully fund the purchase of new car, don't worry yourself too much since there are a number of ways, which you can use and still acquire your dream car without breaking your bank account or failing to meet your family's basic needs.
Precisely, I am talking about car loans and credit card services: It is always very wise to understand different car financing options that are available in various financing institutions through loans and credit cards, and then compare the interest rates and charges every financing option has before heading to your local auto-shop.
On the contrary, some car buyers spend too much of their time comparing and contrasting different models and makes of cars available in their local auto-shop, and then bargaining for a price cut to meet the budget of the money they intend to borrow without considering rates and charges, and they end up spending too much that the price cut they bargained for and managed to get will not be of any significance.
Consequently, the very first thing to consider is how you can raise funds that paying back will not be hectic, and you can only do this if you understand and compare all the rates and charges that come with every car financing option available, and merits and demerit of every option.
Types of Car Finance
1. Hire Purchase Plans
Hire purchase plan offers probably the easiest way to acquire a new car: When buying a new car through hire purchase, you put down an upfront deposit payment, which in most cases is cash, but you can also use an asset like an existing car or something; and commit to a set number of monthly instalments where you will be paying a fixed amount for a specific period of time.
You immediately get the car you wanted after the agreement and can take it home with you. However, the car becomes fully yours after paying all the installments as agreed, and through a legal process, the auto company that sold the car to you through hire purchase has all the rights to repossess the car if you don't fulfil the agreement of paying monthly installment.
Merits of Hire Purchase Plan
- You can have the car you need after the agreement
- Its easy payment method since the cost of acquiring a new is spread and you don't need to pay the full amount at once
Demerits of Hire Purchase Plan
- The car becomes fully yours after settling all the monthly installment
- The auto-company can decide to the legal process to repossess the car if you fail to make your payments as agreed
- You cannot resell the car unless you have fully paid for the car
2. Personal Loans
obtaining a new car through personal loan may be a safer method than through hire purchase since you can decide to resell the car to settle your loan payment should you change your mind about owning a car. To ensure that you get the best lending deal for auto loans, make sure that you do a substantial research on the rates and charges that every loaning institution imposes, to ensure that you don't end up spending a lot while you could have saved a little if chose a given institution over another.
On the other hand, most lending institutions offer low rates and charges for the customers who commit their property as a security, as such, you can go for low rates and charges by using one of your property as a security: However, this may sound risky since you are in a position to lose your property should you fail to make loan payment in time.
Merits of Acquiring a New Car Through Personal Loans
- You can decide to resell the car to make full payment of your loan if unable to raise the money
- You can get low rates by using your property as a security
- You can compare different rates and charges and go with the best offer
Demerits of Personal Loans
- Most lending institutions have a minimum amount to borrow, which may be higher than what you need
- You can lose your property should you fail to make payments in time
3. 0% Rate Credit card
If done the right way, acquiring a new car through credit card is the easiest and cheapest way of all the methods available to buy a new vehicle. Apart from being the cheapest way to buy a new car, credit card offers a legal protection to the card hold, and in any case, the deal backfires after paying some money, the card holder will be able to get his money back in full. To acquire a new car using a credit card at 0% rate, you need to set a monthly direct debit to meet, which is at least the minimum payment any credit card deal will offer.
Ideally, to make sure you do it right and spend little in the general purchase of the car you need, set up a direct debit amount that will enable you to settle the car debt within the allow time-frame for you to achieve the 0% rate. You can calculate the right direct debit to use by dividing the overall cost of the car you want to acquire by the number of months your credit card has the 0% rate.
Ensure that you balance between the credit limit and the cost of the car that you want to own: This is very important because the car may be costly and meeting the 0% rate deadline may be hectic if your credit card has a lower limit. Therefore, to buy an expensive car with a credit card, you can do it right only if your credit card has a higher limit.
However, there are a number of questions you need to ask yourself if buying a new car using your credit is the best way for you. This is because, just like other methods of getting car finance, a credit card has some few upsides and downsides that you need to know before making your final decision whether to use your credit card.
Merits of Using Credit Card to Purchase a New Car
- If done the right way, buying a new car through credit card is the cheapest since you can do it without having to pay any charge or rate on top of the car selling price like it is the case with other car financing methods.
- Credit card purchase offers some legal protection and both the card holder and the credit card issuer are liable for any misfortune and you can end up getting back your money in full or partly in such cases.
- If you use your credit card to buy a new car, you own the car from that day you purchased it, which is impossible with other car financing methods.
- Credit card purchase method offers a flexible means of paying for your debt, and you can pay the minimum amount if any case you can't raise more cash.
- In most cases, the 0% deal of credit card payment comes with impressive offers, and you can be lucky to get one which you could not have gotten if you don't use your credit card to buy a new car.
Demerits of Using Credit Card to Buy a New Car
- Some car dealers don't accept full payment using credit cards, and worse of all, some don't accept credit card payment total.
- You may not be eligible to the 0% credit or 0% money transfer card since there are some strict requirements that you need to fulfill in terms of credit score and more.
- You may be eligible the credit card, but you may not get the credit limit that will enable you to buy a car or rather an expensive car.
- Due to flexible payment terms offered with a credit card, one may not be disciplined enough in terms of paying debts and this could lead to an extra cost of acquiring a new car.
- Some dealers don't accept payment by credit card on some brands of cars, and this may hinder you from getting the car that you intended to buy.
- Charges may be possible on credit card for some car brands when you pay more than the limit set for credit card surcharge.
4. Leasing Agreements
Leasing agreements also offer a good way to own a new car without paying for it upfront: Basically, leasing agreements are long-term means of renting a new car on a contract basis and pay a monthly fee to use the car for a given period of time or a given number of miles within a specific time-frame.
Types of Leasing Agreements:
There are two types of leasing agreements one can use to acquire a new car; personal contract purchase and personal contract hire: In personal contract hire, you can have a new car every year or after every few years without necessarily having to buy the car after the contractual agreement. Actually, it is a type of financing a new car where you pay the difference between the selling price of a car and the reselling price of the same car back to the dealer based on a forecast of annual mileage.
On the other hand, personal contract purchase is a type of financing a new car whereby you buy the car after the leasing agreement, and will only need to pay the resale price of the car to the dealer depending on the agreement and terms of use. However, before you decide which leasing agreement you need to commit to, there are terms and conditions that you need to go through to avoid extra charges and penalties that may arise.
Merits of Leasing Agreements
- Have lower monthly payments
- Lower deposit, which is usually 10%
- Offers flexible repayment terms since it allows between 1 to 3 years
- At the end of the agreement term, you can decide to keep the car by paying the resale price to the dealer or give it back and pay nothing
Demerits of Leasing Agreements
- Mileage and the condition of the car may affect the cost
- Total amount paid is sometimes higher than the hire purchase
- One has to pay the outstanding balance for them to keep the if they decide to
Questions to Ask Yourself When Choosing a Car Financing Method
To give you an easy time in selecting the best auto-financing method that is best for you, you need to ask yourself some few questions to ensure that you go with the auto-finance method that suits you:
1. Do I own the outright after the initial deal?
2. Is the upfront cost high or affordable?
3. How about monthly cost? Is it affordable?
4. Can I sell or make modifications to the car?
5. Is the type of car finance secure or not?
6. Which auto-finance offers protection against unexpected depreciation?
7. Which options accrue charges depending on terms, like charges on mileage limits
Conclusion:
Acquiring a new can be very costly and most people may not afford to pay for a brand new car outright from their own pocket. In such situations, it is always advisable to seek other auto-financing methods that are available and be able to have your dream car: However, there is a number of things that you need to consider to ensure that you don't end up spending a lot of money that you can save anyway. The best car financing method should be the one that you don't end up spending more: Hire purchase should not be the first option since it has many disadvantages. If you decide to do with loans, compare among all the auto financing institutions that are available locally, and ensure that you work with the that has the best offer in terms of rates and charges. However, of all the auto-financing methods available, credit card offers the easiest and cheapest way to acquire a new car than all.
