Looking for the perfect car that fits your needs and style is exciting as it is challenging. Apart from the car’s features, specifications, and feel, you also need to consider how you’re going to pay for it as there are so many ways to do so. Of course, if you’re paying with cash, that’s as straightforward as it can get. However, if you’re thinking of getting car finance or a loan, then there are several factors to think about before choosing.
Getting a loan or finance for a car is similar in some ways because the purpose of both is to enable you to make the purchase. But taking out a loan for a car versus applying for car finance also have their differences. In this article, we’ll examine them so you’ll be better informed on which one to choose when buying a car.
Should I Get a Loan for a Car?
One of the biggest purchases you’ll make is buying a car. With several options to choose from when it comes to how to pay for a car, you have to know which ones suit your situation best. You may choose to get a small loan for a car and then add your own savings to make the payment. This way, you won’t have to borrow a huge amount of money. Taking out a loan to buy a car depends on how much you can afford to pay on a monthly basis for a few years.
A car loan works like most loans. You apply for a car loan from a financial institution such as a bank or dealership where you’re buying the vehicle. Once they approve your application, they will loan you the amount so you can make your purchase. With this agreement, you would need to pay back the loaned amount by making monthly payments. And along with the principal amount, you also have to pay interest.
If in case you find yourself in a situation where you can’t keep up with the monthly payments, it’s a possibility that the lender, be it the bank or the dealership, can take back the car. When you take out a loan for a car, it’s not completely yours until you make all the payments stated in the agreement. That’s why the lender can repossess the vehicle if you fail to pay on the agreed schedule.
Should I Get Car Finance?
Car finance also helps you to get the car you want. It’s a bit different from taking out loans for a car because you have several options to choose from on what to do with the car after the contract ends. There are two common types of car financing: the Hire Purchase and the Personal Contract Purchase.
What is Hire Purchase?
Hire Purchase is when you pay a deposit of around 10% of the car’s value, and then you pay a fixed amount every month for a certain period, say three years. What’s important to remember here is that unless you make the last payment, you don’t own the car. But just like a car loan, if you miss payments, the car can be taken from you by the financing company.
With a Hire Purchase agreement, you also have to check your rights as a consumer, as well as other crucial details in the contract. For example, it’s possible that if your payments have reached half the value of the car, you could return it, and then you no longer have to pay any amount every month. If you’ve been missing payments but you’ve paid one-third of the amount you owe the lender, the car can’t be repossessed without getting a court order first.
What is Personal Contract Purchase?
A Personal Contract Purchase is also an option if you want to buy a car. If you’re unsure if you want to keep the car after the end of the agreement, this is a good type of car finance for you. By the time the contract ends, you may choose to return the vehicle, pay the car’s GFV (or Guaranteed Future Value as it's called), so you can own it, or you may even use the car’s GFV so you can buy a new car.
When getting a Personal Contract Purchase agreement, be diligent in checking the terms and conditions. Examine the fees that may be charged in the event that you miss payments. Also, assess how flexible is the agreement in case your circumstances change and you need the terms updated. Finally, take note of any limitations stated in your contract, such as the mileage you’re allowed every year. Exceeding this will incur extra charges.
Other Important Things to Consider
Apart from car loans or car finance, you also have the option to lease a car. It’s a good choice for those who are not sure if they want to actually own the vehicle. However, if you do want the car to be yours after a few years, then car finance is a convenient and affordable way to go about it.
Car finance is not limited to Hire Purchase or Personal Contract Purchase agreements. There are also great deals such as zero deposit car financing. And just as the name suggests, you don’t have to pay anything upfront when you make your purchase. While there are a number of choices when it comes to buying a car, what’s important is for you to know what type of arrangement works best for you.
Carmoola’s Car Finance
Many people think that getting car finance is a complicated process. With Carmoola, we’ve made everything simple and efficient for you so you can go ahead and buy a car as soon as you get approved. The process is done online, with no long phone calls or the need for a personal appearance. Simply apply through the app, verify your identity, and check if you can get car finance with us!
If you have any questions for us about car finance or loan, don’t hesitate to reach out. We’d be happy to answer them so you can have an informed decision on how to buy your dream car. Contact us today!