Car Finance – How to Finance a New Car

Prime Trust

 

Car buying and car leasing each have their advocates. The advantages and disadvantages of either will relate to your circumstances at the time you buy a car. This article will assist in helping to make a decision. There are 3 options to buy a new car with Prime Trust

Buying the Car With Cash

If you have enough cash to buy a car outright and thereby avoid the interest payments of a finance deal, this is certainly a good option. This is particularly true when interest rates are low because you are not getting much interest by keeping your money in the bank. The only downside to this is that the car you buy will depreciate an average of 40% within the first 12 months, but you will still have an asset you can resell.

Personal Loan

If you borrow money to buy a car, you will need to repay the original value of the vehicle plus interest over a certain period of time. A Personal Loan is the most common way to finance a car. It is an unsecured form of car finance that is attached to the borrower as opposed to the assets bought with the money from the loan (in this case; the car). If the borrower defaults, the lender will seek action against them personally. This means that you can be liable in case you default on your loan. As Personal Loans are unsecured, they often have a higher rate of interest than secured loans. One of the important benefits of a personal loan to fund the purchase of your car is that there may be less paperwork involved , particularly if you have a good relationship with your bank manager, and your loan may be approved more quickly.

Secured Car Loans

As opposed to a personal loan, a car loan comes with a strong element of risk because if you default on your repayments, you may lose the car you bought or even your home if you used it as a collateral for this loan. This type of finance will often require a deposit paid up front and the lender is often the legal owner of the car and is listed as such on the title until the loan has been completely repaid. Interest rates vary according to your credit history and circumstances. If you have a poor credit rating, the interest rate charged could be very high, but it is usually still lower than a personal loan because the lender limits his risk by having the car as a collateral.

In terms of comparing these methods of finance with car leasing , there are advantages in buying the car when:

interest rates are low (for the reasons mentioned above);

you want to have unlimited mileage (you won’t incur mileage penalties for increased driving as when you lease a car; and,

you want more flexibility in that you can sell the car whenever you want.