If you’re considering the purchase of a car, new or used, you may need to get to grips with the sometimes worrying subject of just how you’re going to pay for it.
In fact, typically there’s no need to fret! Here are a few options and some tips on the way to getting those car loans.
Analyse your position
Be frank with yourself.
That’s not meant to be patronising, just recognition of the fact that we’re all perhaps prone to dream of a marque or model that is beyond our realistic financial reach. So, work out what you can realistically and comfortably afford to pay each month before you hit the showrooms.
The next point here is to be equally hard-nosed about your credit history.
Some financing and car loans options are going to be either prohibitively expensive or perhaps even unavailable, if you have a shaky history. Sometimes though an experienced broker may be able to help you find a lender that’s less harshly disposed towards credit history issues.
The bottom line is to prepare and set some realistic targets, so you can avoid making multiple “hope I get lucky” finance applications – which may in themselves damage your credit history.
This is obviously the easiest answer. It also puts you in a powerful negotiating position with the person or company selling the vehicle(s) you’re interested in and enables you to drive the hardest bargains possible.
Unless you have lots of spare capital though, this option is going to require a loan of some type, from somewhere, typically including:
- your bank. Perhaps a possibility but banks can be uneasy about vehicle loans and particularly in situations where you’ve had credit history-type issues with them previously (unauthorised overdrafts, delays in repaying past loans, etc.). You might also need to find a fairly chunky deposit;
- a car finance broker. They may be able to connect you with a lender who will provide your finance, sometimes even if you do have an imperfect credit history. You may also get zero or very limited demands for a deposit. It’s the equivalent of having cash in your pocket though make sure, as with any loan, that you’re happy with the basic propositions.
This may be a possibility but only if you have sufficient credit.
Typically, the interest rates on credits cards make this route one of the less attractive options for many where car loans are concerned. Look very carefully at those rates before selecting this option.
This is one of the most familiar and traditional routes but it may be problematic if your financial background has some issues.
You may find that a dealership will push this route aggressively through their finance offers. Look carefully at those interest rates again and note that typically you’ll be asked to find a perhaps substantial deposit in many cases.
Dealership or manufacturer schemes
These are often enthusiastically ‘pushed’ by dealerships and in terms of one stop shopping they may be convenient.
You should consider them objectively, like any financing option but keep in mind:
- taking the dealer’s finance may negatively affect your ability to drive a hard bargain on the purchase price itself;
- your choice by definition is probably going to be restricted to cars in the showroom providing the finance or even to just certain models.
Lease hire / purchase
In reality, this comprises several potential options and they may differ significantly in their legal and financial implications. Once again, these options are often ‘sold’ by the vehicle dealerships.
You’ll need to look carefully at the specifics of the deal being proposed but here’s a quick summary of the main components often encountered:
- the vehicle isn’t yours until the end of the leasing period;
- you may need to find a substantial first or perhaps final payment;
- in some cases, the car won’t be yours at the end of the lease either but you may have an option to purchase it once the leasing period has expired.
The market for loans is complex and a solution that’s advantageous for someone else might not be so for you.
If you’re unsure, speak to someone who will look across the whole range of market options for you.