Disclaimer – This article was created in collaboration with Carvine. The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion or opinion of Global Banking & Finance Review and is in no way an endorsement or recommendation. All investment and trading involves risk, users of the GBAF website should consult a suitably qualified professional advisor for advice and conduct their own research. Accordingly, we are not responsible for any loss you incur as a result of any omission or inaccuracy on the GBAF website and within GBAF content.
Did you know that car financing is the most popular way to buy a new or used car? It takes the burden of having cash readily available and doesn’t gobble up your savings. Instead, you get a viable way to repay your loan that won’t hurt your bank balance. And drive away in a brand new car!
This is a great place to start if you are considering buying a new car. Here’s a look at why car financing is the best way to buy a vehicle:
What is car financing?
Before you consider applying for a car loan, you should know what it means. In a nutshell, it’s a credit agreement between you and a lender that allows you to pay for a vehicle over a specified period of time.
But, as with most other loans, you have to pay interest on the amount you borrow.
Different types of car financing
Car financing is not a one size fits all. And no matter how you plan to pay, buying a motorcycle is a significant purchase. Unless you’re in the fortunate position of buying your next car outright, you’ll probably have to rely on a financing option.
You can choose between:
Personal Contract Purchase (PCP)
If low monthly payments and flexible buying options sound appealing, then a PCP loan is worth looking into.
Typically, you will place a 10% (or more) down payment and then pay the outstanding amount over fixed monthly repayments. But unlike other types of financing agreements, PCP ensures that you never pay more than what the vehicle is worth at the end of your contract. The total amount you pay is based on the guaranteed future minimum value, meaning you only pay for what the car is worth.
Suitable for those who want to change and update their vehicle regularly, PCP offers you three options to choose from at the end of your contract:
- Pay a final lump sum (or the balloon payment) and the car is yours
- Return the vehicle to the lender/supplier
- Swap cars
Hire purchase (HP)
Like PCP, a hire purchase loan requires a down payment (10% or more) followed by fixed monthly payments. Throughout your contract, the HP company owns the vehicle and you rent it from them until you make your final payment.
Once you have fulfilled your agreement and all balances have been paid, you become the owner of the car.
Leasing, in its simplest terms, is renting a vehicle. But, unlike PCP or HP, there is no option to own the car. But it does mean that you can get the latest models, technology and best safety features on the market every two to three years.
Leasing is a great way to drive vehicles that you normally wouldn’t be able to afford. What you pay during your lease is basically a rental fee that covers the depreciation of the car. But you are expected to rent at least three months in advance.
A personal loan is one of the most traditional ways to finance a car. Borrowed directly from your bank or mortgage lender, you own the vehicle at the time of purchase. You then repay the loan to your lender, plus interest, over an agreed period that suits you.
Interest rates can vary from lender to lender, and factors such as the length of the loan, your personal circumstances, and your credit score will be taken into account. But this is not a loan for the faint of heart. It is better suited to people who are in it for the long haul and would like to own their vehicle for as long as possible before upgrading.
Bad credit history is not necessarily a bad thing
While having a bad or bad credit history doesn’t open the doors to the best interest rates or loans on the market, it doesn’t mean you can’t apply for a custom car finance loan from a specialist such as carvine.
Unlike other types of loans, a “bad credit” agreement is the perfect way to get back up the loan ladder despite your individual circumstances. Specialized lenders work tirelessly to find you the best kind of loan that won’t hurt your credit score, but instead rebuild it – as long as you make your payments on time.
Whether you’re self-employed, have a CCJ, IVA, bankruptcy or credit default, a “bad credit” loan will open the doors to a more positive relationship with your finances.
More flexibility at the dealer
Opting for any type of car financing agreement gives you more flexibility. You get a wider range of choices, more purchasing power, more control over equipment, bike size and color, and many other options that can’t be bought with cash alone.
Beyond that, you’ll likely get a decent manufacturer’s warranty (minimum three years/60,000 miles, depending on the vehicle you choose), and maintenance may be included.
But the flexibility doesn’t stop there. Many used dealers allow you to purchase a vehicle with a PCP, HP, or personal loan agreement. Make sure the engine you want is worth the extra interest rates!
Access to the latest technology
New vehicles come with the latest technological advancements and the safest features money can buy. From automatic emergency braking (AEB) to assisted lane departure and the most up-to-date infotainment systems, you’ll immediately feel like you’ve stepped into the future.
Electric vehicles (EVs) are more affordable
EVs dominate the industry. Most global brands have raised the bar, offering a variety of plug-in hybrids or pure electric versions of their most popular models.
With the menacing 2030 ban on new diesel and petrol vehicles sales, the race has begun to make the switch. Car financing makes this possible. It opens the door for drivers to upgrade their vehicles without the high upfront costs and it will also save you money in the long run.
From doing your bit for the planet and reducing your emissions to lowering operating costs, car financing is the most obvious solution if you’re planning to upgrade to an electric car.
Auto financing is a huge money maker for the auto industry. But it is also the most affordable way to buy a new car. With so many benefits to consider, from low monthly payments to more choices at the dealership, car financing just makes sense!