There are some finance options open to you when you need a new car:
1) a cash purchase
2) a car loan from the dealer
3) a loan from a bank or building society
4) a lease by way of contract hire
1) Buying your new motor car with cash
Buying your new car outright with money from your bank or building society account is maybe the cheapest way of making the purchase. But, it involves lots of preparation and planning for the purchase. For perhaps some years before you buy the car you have to be saving up each month towards the new car. On the plus side, as you are saving ready for the day when you can drive the car away, you are earning interest on the money in the bank, which can also go towards the purchase.
2) Buying your car with a loan from the dealer
This may be the most popular and obvious way to buy a new car, but likewise it might be the most expensive. The problem is that the interest on the loan is calculated in a very basic way. If you borrow £10,000 at an APR of 7.9% APR for 3 years, then the dealer will calculate 7.9% (£790) and multiply it by the term, taking the interest charged up to £2370. Look carefully at that calculation and you soon realise you are never getting reduced interest to reflect the money paid back. Worse still, if you pay off the loan after a year, then you still pay the full amount interest.
3) Buying your vehicle with a loan from a lender
Getting a building society loan, or bank to lend you the money, could be heaps cheaper. Here you are merely paying interest on the amount of loan that is still to be repaid, so as you pay it off gradually more than the term the interest is reducing and if you pay it off early then the interest stops. Effectively, the interest rate is heaps lower. Well worth asking for a few quotes from your lender and other lenders before you go out and look for the car, just look at the total amount to be paid over the term of the loan.
4) Using Contract hire as a source for vehicle funding
Contract hire is a type of vehicle . Here you are basically hiring the vehicle for a long term. Whoever you lease it off will work out the expected depreciation over the agreed term and that is what you are getting finance for on the contract hire . At the end of the term you either give the car back, or in some circumstances you may be able to pay a single lump sum to keep the car.
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