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How to finance your new car?

Updated on February 4, 2017

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Many of us dream of buying a new car, However, our financial condition does not always allow us to do so. However, you can always seek for additional financing options for your new car. In fact, there are different car financing options available once you have decided a specific model of car for purchasing. Sometimes it is really confusing to find out the right finance deal for your new car. In this article, you will be able to learn some of the most popular financing options that are offered by most of the famous motor dealers. However, there are mainly two types of such car finance products: purchase agreements and lease agreements. Purchase agreements mainly offer you an opportunity of owning the car at the final term of the agreement after paying all outstanding repayments. Lease agreements will provide you the permission of using the car for the definite duration of the agreement, but you need to return to the finance company or the dealers after completing the term.

Personal Loan

Personal loan for a car is the most common form of finacing options for purchasing new cars as many of the customers are not rich enough to buy a car instantly with his or her savings. Usually customers get these personal loans from a bank or similar other financial institutions. In this scheme, you can pay the auto dealers or private seller the required amount by tsking a loan from a lender and repay the loan to the lender in the future. This scheme allow you to own the car from beginning, and you will have to pay for any servicing or repairing. Moreover, you have also the chance of selling the car whenever you want to. The general rule is that you pay a definite installment every month that encompasses a portion of the principal amount coupled with interest. In this case, you will have to continue giving payments to the financial institution or bank until the total amount of loan is paid off.

Conditional Sale or Hire Purchase processing system

In this specific scheme, you agree to get a definite amount as a loan from the dealer, the value of any type of car or lesser cash deposit has been offered as a part of exchange. The dealer will contact the motor finance company in order to pay the price for the car on behalf of you after the contract is made. Once the application gets the approval, you can repay on a monthly basis along the length of the agreement to that particular motor finance company. However, you need to know that, you will not be an owner of that car until you pay the whole loan back. In some of the hire purchase agreements, you may find out the last repayment is significantly higher as you have paid the rest of the amount in a lower monthly installment system. This is also referred as the lease purchase.

PCP (Personal Contract Purchase)

If you use this PCP scheme, you can make an agreement with the dealer to borrow a definite amount, excluding the value of exchanging vehicles and any deposit payment. After that, your dealer will make contact the motor finance company to pass the credit checks and pay for the car on behalf of yourself. Here, you will be able to pay a lower monthly payment to that particular finance company and make the car purchase manageable for you by delaying some of the cost until the final term of the agreement comes close. Besides, you will only need to pay for the difference between the deferred amount and the full loan along with an interest charge during the period of agreement. Moreover, at the time of completing the agreement, you will get three different options such as paying off the deferred amount of money in full in order to own the car outright, handing the key of the car back to your dealer and then walk away or you can switch with a new model car and utilize some of the raised money in order to pay the deferred amount.

4. Personal Contract Hire or Personal Leasing

You will be able to make the agreement with the dealer for paying a fixed monthly installment in order to purchase a new car. This basically includes all types of services and maintenance costs over the definite period of time. After making the agreement, your dealer will contact with the financial institution that pays for the car on behalf of yourself. Then, you will need to pay to the finance company a fixed monthly installment until completing the agreement when you have to hand the car back to the dealer or directly to the finance company in some cases. Here, you will not get an option for purchasing the car. In these types of agreements, you will need to be slightly careful not to overlap the agreed contract mileage.

5. Mortgage top up process

In this type of scheme, you will be able to take a loan from your mortgage provider either through withdrawing a definite amount from your house or by taking up a second mortgage in order fulfill the amount that may need to buy a car. Here, you will be assure of the amount you need to borrow and your will be responsible for paying all types of repairing or servicing. Besides, you can also sell your car whenever you prefer to do so. Moreover, you can make payments for the loan through mortgage repayments. However, you need to remember that, you house can be at risk of losing if you can not do the repayments on time.


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    • Coffeequeeen profile image

      Louise Powles 13 months ago from Norfolk, England

      Yes, there's plenty of ways to finance a new car. Unfortunately, I don't have a car now. I miss driving though, so think I'll look into getting another one soon.