Here are the Different Types of Car Financing
Buying a car is not a simple decision because it can ruin your finances if you are not ready. With this, you need to spend time learning and understanding your options. In the end, this will allow you to evaluate what works best in your situation.
If the need for buying a car is dire, you have two approaches – paying in full or considering california auto finance. Most people consider the latter but before anything, you should compare the interest and watch the term.
Personal loan
If you use best used car websites, you will see many offers from banks, credit unions, and other lenders. However, you should ensure that the loan is not secured against your home otherwise you are putting it at risk if you fail to pay.
The advantages: you must know that the cheapest way to finance a car is a personal loan – only if you have a stellar credit score. Personal loans can also be arranged via the telephone, online or personally. If you shop around, you can get competitive interest rates.
The disadvantages: in some cases, a personal loan entails waiting for the funds to be paid into your bank account. This means slower transferring of money.
HP (Hire Purchase)
HP is a loan that is secured against your car. The dealers usually arrange this.
The advantages: aside from being convenient, HP offers a lower deposit – usually 10%. You also have flexible repayment terms as well as a competitive fixed rate.
The disadvantages: the downside of HP is you do not own the car up to the last payment. You should probe deeper because HP loans tend to be more expensive when compared to short-term loan agreements.
PCP (Personal Contract Purchase)
PCP is actually similar to HP. PCP allows you to get a loan for the difference between the brand new price and the predicted value of the car after the agreement. Simply put, this loan is depended on a forecast of annual mileage.
The advantages: PCP offers lower monthly payments with low deposit – usually 10%. It has also flexible repayment terms (usually anywhere from 12 to 48 months).
The disadvantages: the downside of this loan is if you exceed the mileage, it will result in additional fees or charges. If there is also excessive damage, it will mean paying extra. In the end, if you are not conscientious, the total amount might exceed the hire purchase.
Peer-to-peer loans
Peer-to-peer loans are also called social lending. In this type of loan, you still need to have a stellar credit score to get the best rate.
The advantages: peer-to-peer loans are popular these days because they are quick and easy. Additionally, you do not need to deal with banks or credit unions.
The disadvantages: since this is based on your credit score, if you miss payments, your credit will suffer. In most cases, peer-to-peer loans have higher interest rates.
Bottom Line
When you look at it, buying a car is probably the second most expensive thing you will purchase after your home. With this in mind, it is important that you make sure you choose the best way to buy a car. After all, your goal here is not to break your bank.
