If you want to buy a new a car and there is a money shortfall, for most of us luckily there are plenty of borrowing options. Some are easier to get, others more convenient, but which is best for you?
Probably the most obvious borrowing answer is a personal loan. This can be secured from a bank, building society or finance company. However, your credit rating needs to be good in order to guarantee the loan. Ideally shop around for the best possible deal as the annual percentage rate can vary between lenders. Remember that it is inadvisable to secure your home on the loan, as if you miss payments, then the place where you live is at risk.
Then there is hire purchase where the loan is secured against the car. Effectively you do not own the car until the last payment has been made. Quite often these are available through the dealer and are designed to promote new and more expensive used cars with a low deposit and flexible repayment terms, from twelve to sixty months.
Personal Contract Plans
Increasingly common and most popular are Personal Contract Plans (PCP). It is very similar to a hire purchase scheme, but usually with lower monthly payments and the buyer never owns the vehicle. However, at the end of the contract you can opt to pay the pre-agreed future value (GFV) and keep the car, alternatively trade it in and take out another PCP, or just hand the car back and walk away.
Personal leasing is another popular alternative whereby the buyer pays the dealer a fixed monthly amount for the use of a car, with the option to include a servicing and maintenance. However the mileage must not exceed a specified limit, there are penalties if you do, and at the end of the lease agreement the vehicle goes back to the dealer. The initial month's rental payment can be somewhere between three, and as much as nine month's payments and mileage limits for the cheaper deals can be set at unrealistically low levels. Also, watch out for expensive conditioning charges when you return the car.
It is always best to compare schemes, lenders, different annual percentage rates, initial deposits and arrangement fees, which will reveal the true cost of the loan over the whole period. Be on guard for additional costs that penalise early payment, excessive mileage and damage.
Consider taking out GAP Insurance which will pay out in full if the car is a complete write off and most importantly settle the outstanding finance on the car (which would otherwise be owed to the finance company), even if that amounts to more than the model’s value. If you're buying a used car and are concerned about potential car repairs it's alwasy worth considering our market leading extended warranty protection.