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If you want to secure a cheap new car it’s vital to think about all aspects of the car buying process. Treating car finance as a separate entity to the rest of the car purchase is important so you can secure the cheapest rates. However, which aspect of car finance is right for you when buying a new car? This section will examine the options.
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How to finance a new car – car loans, car leasing, more
Most people buying a new car will either take out a new car loan or a new car leasing deal or a hire purchase deal to cover the cost of the purchase. Few of us have the money to buy a car outright, although if you are fortunate enough to be in this position then paying with cash is certainly recommended as you avoid all interest charges.
Each aspect of car finance, including hire purchase and personal contract purchase, is explored in depth at thecarfinancewebsite.co.uk. In this guide we will focus on new car loans and new car leasing and explain the pros and cons of each.
NEW CAR LOANS - HOW TO GET ONE AND THE PROS AND CONS
The biggest mistake most buyers make is to buy a new car without checking out their credit history and discovering whether or not they can support a new car loan. Check your credit profile via Equifax and Experian before you apply for a new car loan because any rejected applications will hurt your credit score. Once you have your credit rating to hand, you will be able to judge the loan rates that are available to you.
Those with good credit profiles could qualify for the leading loan rates in the UK – which are likely to be much lower than the rates you will pick up from your bank or through the dealer, which is why shopping around is so important.
If you have poor credit, it makes sense to enhance your credit rating before applying for a loan. If you don’t have time to do this, then be careful to shop around for rates based on your credit score to avoid rejections.
Making a down-payment is especially important with a new car loan as any money you can put towards the car will drastically reduce the amount you repay in the long-term. Think carefully too about the amount of money you are borrowing. If you borrow a large sum of money (£10,000 or more) you may find cheaper rates with secured loans but these will put your property at risk if you fail to make repayments.
The obvious advantage of a new car loan is that you own the car immediately and there are a huge number of lenders out there with no restrictions on thetype of car you drive or the mileage you clock up, which means you should be able to secure a good deal by shopping around. The disadvantage is that you will pay back more in the long-term, but this is negated if you know you can afford to repay relatively quickly.
Check out SaveMoneyOnCars.co.uk for the cheapest new car deals.
NEW CAR LEASING - HOW TO GET A LEASE AND THE PROS AND CONS
With car leasing you don’t actually buy the car – instead you effectively rent the car for a pre-agreed length of time and then hand it back to the leasing company at the end of the term.
The amount you pay is based on the residual value of the vehicle – that is its predicted cost at the end of the leasing term with depreciation taken into account. You pay the difference between the value of the vehicle at the beginning of the term and its predicted value at the end of the term in monthly instalments.
As such, leasing a new car is a great way of securing a vehicle that would usually be out of your price range. Luxury cars generally retain their value much better than most conventional vehicles. In fact, according to research in 2007 the top five least depreciating cars in the UK included the Audi TT, Audi A5, Mercedes SLK and Range Rover Sport.
Car leasing is therefore generally cheaper than a new car loan in the short term – while in the longer term it will prove cheaper to buy. However, with car leasing you do not have to worry about your car’s value depreciating as you can simply hand it back to the leasing company.
Some car leasing companies will include servicing as part of the cost and you might have the option to take out a new lease on the same car at the end of the contract.
The disadvantages of car leasing, other than that the car will never be yours, include the fact that it is difficult to settle the lease early and you will usually have to pay interest charges on the remainder of the contract. You also have to agree to a mileage limit and stick to it or you could face charges when you return the vehicle. You must also arrange comprehensive car insurance as you are effectively driving someone else’s car.
Be sure to shop around for a car leasing deal as you would for a new car loan. Think about the incentives that your car leasing company offers and look out for special deals and rebates. Check out ContractHireAndLeasing.com for the cheapest car leasing deals.
In the next section we’ll help you familiarise yourself with some car buying jargon.
Move on to part four of the guide to buying a new car…
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