Nov 21, 2017

Going for car financing can be a tricky decision. There are a lot of ins and outs you need to consider to end up with the perfect offer. With so many different terms and conditions, and an array of options to choose from, it’s easy to get lost in the complicated-sounding financial mumbo jumbo. To make sense of it all, we need to break down the process and analyze it one step at a time.

Car loan choices

Let’s start at the very beginning. Here are some of the major car finance options you can choose from.

1. Personal loan

The most preferred means to finance a car purchase is through a personal loan. A majority of the people prefer this method because it gives them instant ownership of the vehicle. Banks, credit unions, and car insurance companies all offer personal vehicular finance options. When taking out a personal loan, you need to consider the Annual Percentage Rate (APR) to compare the cost of the loan. It also gives you the choice of setting the duration of the loan period.

2. Hire purchase

A hire purchase loan is similar to a personal bank loan as you have to pay a deposit and make fixed payments on a monthly basis. The difference, however, is that the car is owned by the hire purchase company until you make the final payment. If you want to sell the vehicle, you’ll need to finish the payment before doing so.

3. Personal Contract Purchase (PCP)

PCP is the best mode of payment for people who want to return or exchange the vehicle by the end of the payment period. Once you’re done with the monthly payments, you have three options to choose from:

  • Keeping the vehicle
  • Returning the vehicle to the supplier
  • Replacing the vehicle with another one

4. Personal Contract Hire (PCH)

The PCH is also known as car leasing. Think of it as renting a car for longer durations of time. The monthly payments you make are against the depreciation of the car’s value over time. With car leasing, you can own a car for an agreed duration (usually 2-3 years) and an agreed mileage limit (usually 10,000 miles a year). After that, you would need to return the vehicle. Just make sure it’s in good condition or you’ll need to pay an additional fee.

5. Dealer finance

Many car dealerships also offer vehicle finance options. But here, you need to be extra careful if you want to get a good deal. It doesn’t matter if you’ve managed to negotiate a good price for the new vehicle or the trade-in. The dealership can cover all that through the finance option they offer. If you insist on low monthly payments, they can simply increase the duration of the loan instead of lowering the cost of the total loan.  If you are good at haggling, this might be the best option for you. 

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