Funding options

Funding options

05 January 2012
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People have been using car financing to purchase both new and used vehicles for many years. It is probably one of the easiest ways to get you hands on a new car without having to spend half your life saving up for it? Car finance makes it possible for people that can't save the deposit money but need a car as soon as possible, to get the car they want in the shortest possible time.

There are many people who can afford to purchase a car outright but still opt for car finance simply because of the many advantages that car finance has. 
There are various types and kinds of car finance available. Each has its own ups and downs; however it’s important that you search for a car finance option that offers you the lowest overall interest rate (annual percentage rate) possible. For people that have the money to purchase a car outright getting car finance means that they can save the money in an interest bearing account or put in an investment which will yield more money.

There are many dealerships which also offer car financing however the problem with getting car finance from a dealership can be the high interest rates. Dealerships tend to offer the highest interest rate however they may be a good option for people with poor or bad credit since they have reasonable lending policies. In many cases it's not actually the dealership which is extending the car finance, but a finance company which is working on the backend and gives the dealership a commission from the financing business they provide to the company.

This in turn benefits both the dealership as well as the person purchasing the car. This is why typically many dealerships will be unwilling to do business with people who are looking to pay for the vehicle in full. This way they don't make as much of a profit and they just make the money which is built into selling the vehicle. 

Deciding to opt for car finance is your personal decision but there are more perks associated with good car finance than drawbacks.

There a few ways to find a competitive interest. You might consider borrowing against an asset like a property. By putting down a large deposit, the lender feels safer. Lengthening the agreement should give you lower payments, but don’t forget you will be paying more overall for the privilege.

Using a Personal Loan

Essentially borrowing a lump sum of money from a lender to buy a private item IE a car, kitchen, holiday etc. The money can be borrowed from mainly banks, building societies or private lending companies, which all have to be regulated by the Financial Services Authority (FSA). The amount you can borrow will depend on a number of factors such as your income, credit history and rating, what you want to buy with the money and whether you can put down any security (your house). Loans can be either secured or unsecured, the former meaning that the loan might be secured on your house (if you don’t keep up the payments you might lose it!), or some other type of fixed investment. While, an unsecured means that a form of security is not required.

With the unsecured loan, the interest rates are higher and there may be compulsory protection insurance such as PPI (Personal Protection Insurance) to cover illness and or redundancy. This is because this type of loan carries more risk.

There lending period for a personal loan is usually between 1 and 5 years. The shorter the period, the higher the payments, the longer the period, the lower the payments are.

As will all methods of financing read the small print, to find out how the interest works either fixed or variable, extra charges and what they are for, and penalties in the event of a non payment.

Interest-Free Credit

From time to time you do see interest free deals available, usually on purchasing a new vehicle. In essence they are a buy now pay later deal, but be aware that if you default on any payments, you will be heavily penalised with interest penalties which can be calculated on the amount borrowed. A car is a major purchase, it is not good advice to purchase any time whether car or not because you can get it on an interest free agreement. If you choose this option make sure to note all the payments made and the dates they were paid on.

A Few Points to Ponder

How much you are paying for the car

Your salary

The period of the loan

Your credit history will be checked

Get a quote finance your vehicle

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