Car finance

When purchasing a car, there are several options available for how to pay for it. Earlier it was common for a prospective car owner to save money until he or she could afford to pay in cash, but today a lot of us use various credits to finance our car purchase. You can of course contact your bank and ask for a traditional loan – perhaps even offer your home as collateral to negotiate a better deal – but you can also contact one of the many entities specialising in car finance solutions. Many car dealers work together with a specific car finance company, but don’t automatically chose that car finance provider since you might be able to negotiate a better deal somewhere else. By setting some time aside to shopping around and checking out the market you might very well save yourself considerable amounts of money in the long run.

When it comes to car finance, there are four basic types of credit solutions: secured loan, unsecured loan, personal lease, and hire purchase. You should also keep in mind that if you already own a car, you might be able use it for part exchange. In some situations you will however get more money by selling your car privately or directly to a used cars salesman than by using it for part exchange. Always investigate your options before you make a choice and do not let anyone stress you into making rapid decisions that might later prove financially unsound.

A secured car loan is a loan where you offer some type of property as security. Since the financial risk connected to a secured loan is lower for the credit issuer, you can negotiate more beneficial terms than for an unsecured car loan. You should however keep in mind that you risk loosing your property if you do not pay the credit issuer according to plan. Using your home as collateral can therefore be dangerous. Today, many credit issuers will accept the car as security instead of real estate. Carefully weigh the risks and benefits against each other before you decide which solution that is best for you and your financial situation.   

An unsecured car loan is a form of car finance that does not use any property as security. This doesn’t mean that you can neglect making payments; if you don’t pay off your unsecured car loan according to plan the lender will most likely sue you to get the money back. Also keep in mind that the interest rates tend to be significantly higher for unsecured car loans compared to secured ones. In some cases, the interest rates are so high that the company that sells you the car will earn more from their share of the car finance solution than from selling you the car in the first place.

Personal lease is an interesting solution if you are willing to do some negotiating. Some personal lease offers are great, while others are merely a really bad way of renting a car. You should always take a close look at the fine print and find out exactly who is responsible for repairs, mandatory car testing, and insurance costs. You should also keep in mind that lease agreements tend to come with a mile restriction and overstepping this limit can be really expensive.  

When buying a car on hire purchase, you do not own the car from the beginning. You will make regular payments and when a majority of the credit has been repaid you will become the owner of the car. Most hire purchase agreements stipulates that if you return the car when at least 50% has been paid off, you will no longer own the renter any money. Always check the fine print to find out which type of arrangement that you are being offered.