Understanding contracts and financing can feel like a monumental task. The information can be confusing, and you can become overwhelmed with the options. Going into buying a car needs extensive research. You want to know what works best for you in the financial position you are in.
But it doesn’t have to be that way. We’ve taken a look at all the different car financing options and have spelled it all out for you to make it all a little bit easier.
Types of car financing
- Hire purchase
When you have a hire purchase agreement, you pay predetermined monthly instalments on a car until it is paid off. This means that by the end of the agreement, the car is all yours. However, you are technically hiring it until these payments are complete. This is why it’s important to make a financial decision now on whether to rent or finance and this debate can be made for additional parts you will also need to fund. For instance tires, which can be expensive if you are not financially prepared for the additional cost and can also be bought through renting to own tires which again creates you a monthly premium to pay, which allows you to get what you need without creating a financial issue for yourself.
One of the benefits of this type of agreement is that these payments are typically a fixed amount each month.
When it comes to ownership, as you are paying the financing company, they are legally the owner of the car until the final payment is made. However, you still need to take care of any of the extra costs such as insurance, car tax and any other extras you might need.
This is one of the only car financing options where it’s actually cheaper to get a new car. Hire purchasing is popular with those who would like to invest in a newer vehicle, but don’t currently have the funds to buy one outright.
If you are wanting to get out of your agreement, you can usually do this once half the car has been paid off. However, you will be charged if there is any damage done to the car. It’s best to get anything fixed before you send it back as the car dealers’ prices to repair any damage will be a premium.
The car dealer is typically unable to repossess your vehicle once a third of the car’s price has been paid. However, these rules are subject to each individual agreement so make sure you read the small print.
- Personal contract purchase
The similarity between a personal contract purchase and a hire purchase is that you pay in monthly instalments. However, with a personal contract purchase, you have to pay a lump sum at the end. This can mean that you end up paying more overall, even though the monthly instalments are smaller.
You are typically written into a contract that lasts either three or five years, and you can choose which is right for you. When you get to the end of the timeframe you’ve chosen, you can decide whether you want to keep the car or not.
Then, you will be required to pay whatever cost is leftover at the end of the contract. This is the most popular way to finance a car, but the costs can be significant if you want to keep the car at the end. You can also come across some strict terms in the agreement to do with the mileage you’re allowed to do.
- Personal contract hire
If you’re not in the market for a car long term, but need something cheaper than a rental, then this is the option for you.
The terms are mostly the same as a personal contract purchase agreement – the only difference is that you don’t get to own the car at the end. All servicing and maintenance are included in this deal but there is typically a mileage limit.
- Car subscriptions
The new kid on the block in car financing is a car subscription. These aren’t available everywhere, but it can be a great option if you’re looking for flexibility. You can finance a car for as little as a month at a time so it’s great if you need a vehicle to tide you over.
The only thing to bear in mind is that this is the most expensive option out there. So, it’s not ideal if you’re looking for something long term.
No matter what you’re looking for, there’s a car financing deal for everyone. Which looks like the best deal for you?
