The 5 Best Ways to Finance a New Car

Outside of financing a home, financing the purchase of a new car is the second most expensive purchase you make, so it is important that you research your options, to find the best deal on financing your new car purchase. Here are some options for you to explore:

Hire Purchase (HP)

Hire purchase is a way to buy a car on finance and make instalments payment for between 12 and 60 months. The car secures the loan, which means you don't own the car until the last payment is made. A deposit is sometimes required, usually around 10% and the dealer sets the payment arrangements. Fixed rates for new car purchases are very competitive. However this type of financing while easy to do, can be more expensive for short-term agreements
Personal Contract Plan

The personal contract plan for car finance while similar to the Hire Purchase Plan, can result in lower monthly payments over a 12 to 36 month period. The personal contract plan allows you to pay the difference between the sale price of the car and the resale price paid back to the dealer. This plan also offers end of term options for you to choose from;
  • Option 1: pay the resale cost of the car and keep the car;
  • Option2: trade the car in and start a new personal contract plan;
  • Option 3: give the car back to the dealer, owe nothing.
The down side for this plan, depending on the choice you make at the end of the agreement, the mileage used and condition of the car may affect the costs, the outstanding balance has to be paid in order for you to keep the car, and your total amount paid under this plan could be more than you would pay under the hire purchase Plan. There is a great guide to personal contract we recommend reading at Parkers.co.uk

Personal Leasing

This car financing option allows you pay the dealer a fixed amount monthly, to use the car. Service and maintenance is included as long as you don't go over the mileage limit specified in the agreement, with monthly payment terms between 12 and 36 months.

The fixed monthly plan makes motoring payments easy and car depreciation is not a concern because the car is returned to the dealer at the end of the agreement. A few things to keep mind if you are considering this option; a deposit is required equal to the cost of renting for 3 months; because service and maintenance is included , monthly payments are higher and you will incur extra charges if you exceed the mileage limit. WHATCAR? has a comprehensive guide to personal car leasing if you require further information.

Personal Loan

The cheapest way to finance a car is usually with a personal loan, and Clydesdale Bank is worth looking into if you are considering a personal loan to finance your new car.

Applying for a loan with a bank such as Clydesdale Bank for example is quick and easy with their online application. You get an instant decision for loans of £1,000 - 25,000 at 4.6% and you can use for almost any purpose, not just financing a car.

Cash or savings?

This option can be considered when your savings is not earning much sitting in the bank. Based on your budget and income, you can use your savings to pay the full balance of the car, a portion of the balance or just a very hefty deposit. However you might come out better using your credit card to purchase the car, and using your savings to pay off the card in full the next month. This give you the benefit of your credit card protection purchase.


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