Whatever effects Brexit or general global economic stagnation may be having, it would appear that the automotive industry in the UK is carrying on its merry way. I know that neither of those were a consideration for me last December when i decided to upgrade my 5-series, the only thing that i thought about before taking the plunge, were my own personal needs and my budget.
And i’ve just learned that because of people like me, the number of cars on our roads continues to enjoy year-on-year growth in the region of half a million, bringing the total to more than 30 million. Not sure if thats a good thing or a bad thing but it does make for staggering reading, particularly for a country which forks out such a huge amount for public transport infrastructure. That said, the reality is that, outside London and other major cities, a car is simply a necessity. If you’re someone who is looking to either buy a car, or at least looking to upgrade significantly, you may be wondering what the best way to finance this may be.
There are a number of popular options, each with their own merits. Here’s a bit of background to five of them, and, hopefully, learning a bit more about them may allow you to zero in on the most suitable path for you.
Nothing technical about this option. If you have the savings to cover the cost of your new car, it is a very appealing way to go. Bear in mind, that with interest rates on current and savings accounts bordering on the derisory, there isn’t an obvious opportunity cost either. The two most important considerations are simply whether the savings spent on paying for the car could have been better spent elsewhere, and also to ensure that it doesn’t leave you short of cash in the immediate future.
Car leasing effectively amounts to long-term rental. Contracts tend to be in the region of three years, and you’ll be liable only for the monthly payment you make (and additional extras like insurance). Maintenance costs are usually covered by the agreement, and monthly payments tend to be competitive. The only two important factors to consider are that there will be a mileage restriction, while at the end of the term, you won’t actually own the car, or have any equity thereof.
Personal Contract Purchase
This is essentially a form of leasing, and most differences are generally cosmetic. The crucial distinction between the two though is that with a personal contract purchase agreement, you will have the option of buying the car at the end of it via a so-called ‘balloon payment’.
This is an increasingly-used financing method which involves the customer putting up a deposit at the start of the agreement – usually 10 per cent. Thereafter, you make monthly payments in a similar fashion to the two schemes above. The important thing to note here though is that you don’t actually assume ownership of the vehicle until the final payment has been made.
Many people are quick to lump the any upfront costs of a car on credit card, but it can be rather foolhardy, given the rates of interest involved. Some might cite the convenience involved, but these days acquiring finance via a personal loan is incredibly quick and easy. Most platforms and providers allow you to complete the process entirely online, and pay outs are swift. The kicker though is that this increasingly competitive market has driven APRs down, so, provided you are comfortable with the level of debt you are taking on, this can be a very attractive car finance option.