The days of having to save up to buy a car have disappeared. We no longer have to wait to accumulate enough to get ownership of a shiny new vehicle.
And whether you want to buy a car outright or seriously upgrade your existing vehicle, the options are now much easier than ever before.
Generally, there are five common ways of financing a car purchase or upgrading an existing vehicle, for example fitting exciting new rims:
- A personal loan can be provided by a bank or credit organisation. The amount can cover the entire cost.
You then make repayments at the pre-arranged times over a set period to repay the loan. You are charged interest in the meanwhile.
- Leasing or financing means you can pay for the car without having to legally own it outright. You can arrange to make payments for a set period, typically two or three years.
At the end of the period, you can return the car to the leasing company or buy the car at a special price.
- A finance deal from the manufacturer is another popular way of buying a new car. Most brands offer finance packages to help customers purchase their vehicles.
- A home equity loan is a way of borrowing money against the value of your house but using it for another purchase – like a car. Again, you will make regular repayments after getting the car.
- Wheel and Tire financing has become a common practice. This is a way of spreading out the costs to make it more manageable and if you are thinking about upgrading your wheel rims there is also financing available.
It seems a complex marketplace and many people don’t fully understand why they should take one type of payment system over another.
Financing is one of the most modern, popular and flexible ways of getting a vehicle. But how does it work and what are the different ways of leasing a vehicle?
There are two main systems for car leasing:
- A closed-end lease involves set repayments over a fixed term, usually two or three years. At the end of this period you can buy the car from the leasing company or return it to them and end the arrangement.
You do not own the car during the lease period. The lease company is responsible for repairs and maintenance during this time.
- With an open-end lease you are responsible for the costs during the set period. The conditions are much the same, but all servicing and repairs are paid by you.
This usually includes the fact that you are deemed responsible for any depreciation that has occurred during the lease period. The lease company will assess the difference between the expected residual value of the car and its actual value at the end of the lease period – and you can be liable for that difference.
So why are financing packages like these so popular? What are their advantages?
- Affordability: if you finance a car, you can spread the price of it over a long period, making the process more affordable for most buyers.
- Convenience: you can simply choose the vehicle you want without having to wait years to save up a lump sum payment.
- Better or newer car: the process may enable you to get hold of a newer or better model than you would have been able to afford with a single down-payment.
- Improve your credit rating: by making regular payments over a long period you will improve your credit rating for any future purchases.
- Keep your savings intact: the finance scheme can keep your contingency savings intact and available to help with any unexpected financial demands.
Overall, financing a car purchase using a lease arrangement, sometimes called a contract hire scheme, has become very popular.
There are several advantages that make finance schemes an attractive system – both for buying a new car or for upgrading and improving an existing one.
Finance can help you buy the car of your dreams – but it can also help you turn your existing car into the car of your dreams too.