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Over 2.4 million new cars hit the UKs road in 2007, and the figure is not expected to be much lower in the year to come. Everyone wants a new car and increasingly people are using loans to afford them. Halifax released figures last year showing that 67 per cent of those taking out loans to buy cars are men, mostly around January and August when the new number plates come out. But what should you be looking for if you decide to splash out on a flash new motor? This article will provide all the info you need to consider when buying a car on credit.
The big decision you must make is choosing the type of credit arrangement you want. There are millions of different products out there, and they are all packed with mind boggling small print and thousands of additional terms and conditions. Obviously you are going to have to get down study them eventually, but the task will be a lot easier if you have some idea of the basic options available.
One popular option is hire purchase. With this method you hand over a deposit, and then pay off monthly installments until the car is yours. Most dealerships will let you buy a car off them this way. The interest rate on hire purchase can vary though, and you should compare the price of borrowing the money elsewhere. Some dealers will look to push you into an arrangement that will not necessarily be the best deal for you, so it is worth looking at the cost of borrowing before you head off to look at cars. The advantage of hire purchase is that the loan is secured on the car, so there is no chance of losing your house if you fail to keep up with repayments.
Personal contract purchase (PCP) is similar to hire purchase in that you put down a deposit and then pay monthly installments. With PCPs though, there is also a lump sum that must be paid at the end of the installments in order for you to own the car outright. This sum, the minimum guaranteed future value (MGFV), is often quite large, but gives you the option of buying the vehicle there and then, walking away with nothing, or switching to another PCP plan and getting a new car. PCPs usually have lower monthly repayments than hire purchase meaning you can afford a better car. They do work out more expensive in the long run though.
Both of these options are available only from dealers, and it can often be cheaper to take out a personal loan. Taking out a loan has the added advantage that you own the car outright from the moment you start making payments. If the loan is secured on your house then there is always the risk of finding yourself homeless though. It is generally cheaper to borrow money from a bank than a dealer, especially if you shop around. But banks are becoming increasingly fussy about who they hand out thousands of pounds to, and it make take some searching to find a cheaper deal that will accept you with a blemished credit history.
The last way of getting yourself a new car is personal contract hire (PCH). The big problem with this scheme is that you never actually own a car, and just rent one off the dealer instead. There are big advantages to this though. The payments are often cheaper than with PCPs or hire purchase, and you always have the option of getting a new car at the end of every deal. If driving a brand new car is a must then this is the deal for you. Maintenance and servicing is often included, and with the second-hand car market increasingly weak, PCHs are beginning to look more and more attractive. There is always a catch though, and unfortunately these arrangements are not widely available.
Once you have worked out which of these plans you think will suit you the best, the only thing to do is to shop around. Price comparison websites are a great way to compare lots of palns at once, and after consulting them and your dealer, you should be able to find the deal that is cheaper for you. Dont get drawn in by flashy introductory offers which cost a fortune in the long run. Use the APR, which calculates the cost of the loan across its entire length, to assess which product will be cheaper in the long run. At the end of the day the more legwork you do, the more likely you are to find a great deal. So do your research, get some comfy shoes on, and good luck.
About the Author: Robert Wood –
Car Loans
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