Today thousands of people turn to auto financing. Auto financing means that the car consumer does not pay for the car up front but chooses to pay over time. There are a few ways of auto financing. Every person chooses the best option for him depending on his credit score, preferences and maybe even hobbies. Now, let’s see which particular methods of auto financing one can use.
- Personal loan; here you can apply for the loan just like you do for other purchases and then you will pay the full car price with the money. Then you pay back your loan in monthly payments. Here, the interest rate, the size of monthly payments depends on the money lender. Note that you can lend money either from a bank or a credit union or you can turn to your dealership for a loan. However, in the case of the dealership’s loan the interest rate will be higher. In the case of personal loan you are cash buyer so you can choose to buy your car wherever you want. The main advantage of this type of auto financing is that you immediately own the car and you can even sell it after, for example, 6 months. The disadvantage is that you must have a good credit score to afford yourself such a way of auto financing as personal loans.
- Hire purchase; this has long been considered to be a traditional way of auto financing. In this case the car buyer pays a down payment (usually 10%-20% of the car price) and then monthly payments like in the case of personal loan. The main advantage of hire purchase is that it is cheaper and easy to obtain with a not very good credit score. As for the disadvantage: you do not own the car, until you have done all the monthly payments and accordingly, you cannot resell it whenever you wish. Also, if you do not manage to pay the monthly payment on time, the car will be repossessed.
- Personal contract hire; this type of auto financing is the usual car leasing we are always talking about in our blog. Financing a car by means of a contract hire does not mean you are going to own the car at the end. You pay a monthly rental payment which is considerably low as compared with the payment you would have to pay if you decided to buy the vehicle. The main advantage of this auto financing option is that you can change your new car every 2-3 years. Also, in most cases car maintenance costs are included into your monthly payments. You can also buy the car at the end of the lease in a lower price.
- Business contract hire; this auto financing option works in a similar way as personal contract hire. The only difference here is that the company pays the monthly payments and it is the company that has to return the car at the end of the leasing period. Also, if the company’s business is VAT (Value Added Tax) registered then they will get some tax benefits from their car hire.
If you haven’t yet decided which auto financing option to turn to, you can read our article on the advantages and disadvantages of car buying and car leasing.