3 Different Ways To Finance The Purchase Of A New Vehicle
Posted on: 15 January 2019
If you are in the market for a new vehicle, it is important to understand all of your financing options. Understanding all of your financing options will help you make the best financial decision for you in 2019.
#1 Personal Contract Purchase or PCP
With a personal contract purchase, you are entering into a contract with the dealership where you are purchasing a car. This arrangement is also often referred to as leasing a vehicle. You will pay the dealership a deposit for the vehicle. Then, the interest rate for the vehicle will be set at a fixed rate. You will not have to deal with a variable interest rate.
The terms for paying off a PCP are generally shorter, somewhere between one and three years. At the end of the loan term, you have a few different options. You can return the car back to the dealership, and you don't owe the dealer anything else if you stayed within the terms of your lease.
Or you could trade in the car for another vehicle. When you trade the car in for a new car, you may be able to avoid putting down a deposit on the new vehicle. Or you can purchase the vehicle for whatever the car's projected retail value is minus the money that you have already put into the vehicle.
Leasing or using a PCP is a popular option because it allows people to drive new cars that they might not be able to otherwise afford for a few years before trading in for a new vehicle again.
#2 Hire Purchases
With a hire purchase (HP), the company that owns the car continues to own the vehicle until you make your final payment. You have to put down a deposit, and then you have to make fixed monthly payments over the loan term. The payment amount will not change.
Until you pay off the car, you don't have any rights to sell the car. This is different than a bank loan, where you can sell the car before you pay off the car; you just have to pay off the bank. With a hire purchase loan, you have to pay the company in full before you have any rights to sell the vehicle.
#3 Personal Loan
You can also go through a bank and get a personal loan. If you have a long-term relationship already with a bank, this can be an advantageous way to get an affordable car loan. With a bank loan, you own the vehicle; you just have to pay the bank back the loan amount. If you default on the loan, the bank can take the vehicle back from you as collateral.
Bank loans are one of the most popular types of loans, as one can often get good loan terms and interest rates, especially if you already have a relationship with the bank.
When it comes to financing a vehicle, there are actually lots of ways to go about it. You can enter into a personal contract purchase (more commonly known as a lease), enter into a hire purchase agreement, or obtain a personal loan. This is not an exhaustive list either. Look into all of your financing options before you start the car buying process, so you know what one is right for you. For more information, contact a dealership like Schwieters Chevrolet of Cold Spring.
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