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Car loans – making the most of your borrowing

If you are buying a new or second hand car, then, unless you are lucky enough to have some money put aside, you will need to think about how you will finance your purchase. It’s not simply a case of ‘borrowing money’ though, as there are many different ways of raising cash. This means that you need to look at the different car loans options and then make a decision based on what suits your circumstances best.

If you are buying a new or second hand car, then, unless you are lucky enough to have some money put aside, you will need to think about how you will finance your purchase. It’s not simply a case of ‘borrowing money’ though, as there are many different ways of raising cash. This means that you need to look at the different car loans options and then make a decision based on what suits your circumstances best.


Car loans can come in many forms and guises:


Hire Purchase
Hire purchase is where you buy a car from a dealer and you arrange the finance through them. You can usually get it on new and used vehicles and, because it is often simple to arrange, it can be a popular choice among car buyers when looking for car finance.
However, you should note that the car is not fully yours until you have repaid all the outstanding debt on it.


Personal Contract Purchase
Sometimes referred to as ‘balloon payments’, PCP’s are again arranged via new car dealerships. Like a normal loan, you make monthly repayments for a set period. Then at the end of the period, you either make a one off larger, pre-agreed payment so that the car is rightfully yours, or you hand it back. For people who like changing cars regularly, this could the right solution for them.


0% Finance
If you are a buying a new car, then you may be able to take advantage of a 0% finance deal. There are still some interest-free finance options available to new car buyers, subject to terms and conditions of course. How they normally work is that you pay a large deposit (say around 35%) and then arrange finance for the rest of the lending. You will probably get 0% interest on the finance for a set period only, so it makes sense to check what the interest rate will be after the period ends. Note that new car dealerships can vary in what they offer, so do your homework and see who is offering what, if you are thinking about this as a way of financing a new car.


Personal Loan
Some people opt to take out a personal loan as a form of car finance. As this is arranged separately from the car purchase, this can put you in the favourable position of being a ‘cash buyer’ when going to a car dealership. This means you can haggle harder and, in many cases, get more for your money.


Car Loans
Of course, you do get loans that are simply called ‘car loans’. In many cases these are simply personal loans that have been rebadged as car finance, though they can offer additional benefits, such as payment holidays.

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