A car is one of the most expensive investments we can make. If you are wise enough, car purchase wouldn’t be that hard. There are various modes for car payments that will less hurt than outright cash payment. The general rule is, finance deals requires additional fees, but it each cent must bring convenience to the one paying.
According to thriftyscot.com, there are basically three modes of finance deals if you cannot pay outright cash for a car. These are hire purchase, personal contract purchase and a personal loan.
Let’s look at the Pro’s and Cons of each method:
Hire Purchase
The Hire purchase commonly requires a down payment with a minimum of 10 percent of the vehicle price. After the down payment, you will be making a series of monthly payments ranging from one year to five years. You can call yourself the owner after making all the monthly payments and if you fail, your dream vehicle will be repossessed.
Almost all hire purchase deals have interest rates, if you encounter a zero percent interest rate, you have to really dig the details of the deal and your vehicle. More often, cars offered with zero percent interest rates are those that comes with high deposits and or marketing ploy for cars difficult to shift.
Personal Contract Purchase
Like that of the Hire purchase, personal contract purchase also requires a down payment usually ten percent and a series of monthly payments. But in a sense, this mode of payment is essentially a long term rental deal. Commonly, a personal contract purchase lasts for three years and after the time, you will hand back the car or sometimes buy it for a price agreed at the beginning of the deal, this is also called the balloon payment. Another option is trading your old car for a new one.
Among the three modes of car payments, this is the most expensive. The three years of the car’s life is also the time of its serious depreciation, and you will be paying for it at this time. According to AA, the car loses 60 percent of its value at this time. On the other side, the monthly payments are lower than that of in hire purchase and personal loans, because you are paying for the difference between the balloon payment and the car’s price.
Sticking to the mileage limit as agreed is also an important factor. Service and maintenance package sometimes are also part of the deal. It will cost you less on service bills but is probably more expensive if you are using an independent dealer.
Personal Loans
Personal Loans is the cheapest among the three options. If you have a good credit rating, you will be able to get the cheapest rates advertised and you can already own the car right away and sell it if you like. Deposits are also unnecessary.
A research finding from uSwitch.com found out that typical showroom finance is at 10.8 percent APR. The cheapest personal loans offered is from 6.3 percent APR that shows savings can be really made.
Comparing the Three
All three options have their own pros and cons and comparing them may be a little complicated. To make it easier, you can add up all the payments you are required to make and compare the total amount repayable.
You also have to consider how long you are going to replace your car. Personal contract purchase is advisable for those who plan to replace their cars every three years.
After choosing the best mode of payment, the car of your dreams will be delivered at your doorstep. May it be a coupe, a sedan, a mini van (some you can choose to accessorize with
Weathertech cargo linerlater), an SUV, with the comfort it brings, you can best enjoy it without having to worry about how you can pay for it.
