It’s true that financing a car has probably never been easier – recent research highlighted how 91% of new car buyers paid on finance over last 12 months making it a preferred way of financing a car.
With a number of car financing options around, what do you need to know in order to choose the most suitable and cost-effective method for you? Here is a snapshot of your different ways to finance a car.
Significant numbers of dealers appear to advertise their finance deals almost as prominently as they do the vehicles they’re trying to sell.
There is nothing wrong with that but as they do, in one form or another, typically receive some form of reward for all financing deals secured, it will pay to be cautious about assuming they are being objective when putting their offer on the table.
Dealerships may only work with a limited panel of car finance lenders, so you may not get such a choice of finance options.
Their proposal should be regarded on its own merits but keep in mind if you are asking the dealers to find you finance, you may find that it impacts your negotiating position with respect to the price of the vehicle.
Conventional bank loans
Bank loans have been used to purchase cars for many decades.
The big attraction here is that it is a familiar source. It is certainly worth looking seriously at their current products at a given time. Even so, keep in mind the following important points relating to bank loans:
- depending upon your total overall position with your bank, it isn’t necessarily always advantageous to highlight to them your total financial exposures including that arising from a car purchase;
- even today, the banks have a reputation for being somewhat sluggish decision makers;
- their lending criteria may be strict;
- in the case of prestige, performance and expensive classic cars, the banks may be far more risk-averse than some other providers of car finance.
Car finance providers
There are car finance specialists who’re offering what could be considered some very attractive deals.
It is typically worthwhile considering their offerings because you may find a degree of flexibility that might not always be available from dealers and banks. Examples might include their products offering options such as hire purchase, lease purchase, contract leasing and so on.
They may also work with a large panel of lenders, meaning they can match you to the moist suitable finance deal for your own unique needs.
Things to consider include:
- their experience in providing innovative solutions to car finance;
- whether or not they are fully regulated.
This route may be a particularly positive one if you are looking for those above-mentioned performance or prestige vehicles.
Your bank account
Whether you have cash in liquid form in your bank or perhaps held in some form of pension or other savings that you could access under notice, this may be a route that initially appeals.
At face value, it may well be the lowest-cost solution because you’ll have no charges or interest to pay etc.
However, it’s important to look beyond the surface layer and keep in mind a few things about purchasing a vehicle outright with your own cash reserves:
- once you have spent the money and it is tied up in your vehicle, it is no longer available should you need it for an emergency or other purpose;
- in the case of many new cars, most experts agree that the value depreciates around 15-20% in the first year. That is a big hit on your lump-sum cash deployment;
- having significant savings and other cash reserves can have a very positive impact on external assessments of your overall financial wealth. Reducing that considerably by purchasing a car outright, might not always be advisable in situations where you are seeking other forms of loans or finance.
The option you select for sourcing your car finance will obviously depend very much on your own circumstances and your views of life.
If you are not naturally comfortable with figures, it might be sensible to ask for some advice and guidance in terms of how you take your purchase forward through various car finance options.