Buying a vehicle is a tuff decision. New automobiles can be expensive, and finding a good quality second-hand car can be difficult. Even if you come across your ideal vehicle, purchasing automobiles is a big problem. As it is a big investment, you want to get everything right. The automobile market has many ways of financing your needs to help you get your dream car. Let’s find some of the popular methods for financing your automobile purchases.
Personal Loan
Getting a personal loan is one of the most common methods to finance a vehicle purchase and everything else—the reason is its simplicity and flexibility. The paperwork is fairly easy as professionals will prepare it for you. It is recommended to read the documents properly. Provided that your credit rating is good, you can get a personal loan from a bank, building society or finance provider. You can freely choose the payback period, and it is also cheaper than other options. It can cover the entire cost of your car or a portion of it. Keep in mind that you need to research which bank or company will provide you with the best interest rates.
Installment plans
The installment plan, also known as hire purchase, is another way of financing your loan secured against the vehicle you are looking to buy. Let’s say you deposit a fixed sum upfront —10% to 40% and then make monthly payments at a fixed rate over time. The dealership usually performs this type of arrangement, so it is easy to execute. Because of its ease, it’s a good idea to look around dealership installment plans because they are quite competitive and you might find better options for installment plans. Note that this method is suitable for expensive and long-term purchases, like a car. For cheaper and short-term agreements, you need to consider if spreading the cost is worth that amount of time. Additionally, you don’t own the car until the final installment is completed. This means that in the event of car theft or damage, the insurance might not cover the cost unless you have Gap Insurance. Even so, getting gap insurance will incur an additional cost.
Personal contract purchase
Personal contract purchase is a form of installment plan but slightly different. First, instead of securing a loan against the vehicle, the loan is made to differentiate between its brand new value and predicted value at the end of the agreement. Next, monthly payments are also generally cheaper and instead of paying money upfront, there is a balloon payment at the end of the agreement. At the end of the agreement, you can choose to pay the balloon payment to own the vehicle fully or return it to the finance company and avoid the balloon payment. Unlike installment plans, you actually own the vehicle. However, if you choose to return it and during the time period, if the vehicle has sustained damage or exceeded the mileage, you’ll be subject to extra fees. This is a great option if you don’t have the money upfront or unsure about buying a car.
Leasing
Leasing is a form of financing where you can rent a vehicle and drive instead of paying to buy and own a vehicle. You will agree to a certain mileage threshold and make monthly payments. Additionally, the company will often include servicing and maintenance for leasing the vehicle. You can renew your leasing agreement or switch to a different provider at the end of the month. Keep in mind that since you don’t own the vehicle, you will have to return it. Leasing is generally more expensive, but you don’t have to worry about maintenance and car depreciation value. This is a great option for you if you are unsure about fully investing in a car or need it for a fixed period of time.
While all of the above options are viable, there are a few things you should be aware of. Shady business practitioners and companies can use underhanded ways to rip you off or you might make some foolish mistakes. Here are a few things you should consider before choosing a financing method.
Securing a loan with an asset
When you are securing a loan with an asset, avoid using important assets like your house as collateral. If something unfortunate happens and you fail to make payments on time, you’ll lose the car and your entire home. Instead, use something else like unused land or other property.
Emergency savings
It is crucial to have enough savings reserved on your bank when financing a car. Unexpected things can happen any day, and when they do, you need to be well prepared for it. So make sure you have enough money reserved for emergencies before buying a vehicle.
Gap insurance
If you opt for installment plans, it is necessary to have gap insurance. Sure, it will cost you more but it will protect you against the risk of car theft or damage. These earlier investment can protect you and your money against any possible accidents in the future.
Making monthly payments
If you use a financing method that involves making payments over several months, make sure you can comfortably pay for the entire duration. Not just the first couple of months. It’s foolish to sign a financing contract when you can only pay for the first few months and leave the rest of the payment for the future – thinking you can somehow magically manage it.
Choosing the appropriate provider
Not all financing providers are honest, so do your research beforehand. Some providers may offer “too good to be true” interest rates and then make appealing claims but use underhanded legal tactics to scam you. Thus, it’s important to cross check the provider’s claims with your friends or the people on the internet.
