There are many different ways to buy a new car. Most people are set in their own way on how they're going to fund their next car purchase. For instance, some people are savers that are cash buyers and some people are not. In fact, 80 percent of people who buy a new car do so by taking advantage of some type of car finance deal.
If you've read those last few words - "some type of car finance deal" - and are nodding as you've taken your car out on finance but don't understand fully what different options are available, don't worry - not many people realise that the term car finance actually relates to many different kinds of car finance options. And it's having an understanding of each of them that ensures you can get the car you want for an affordable monthly payment, very often meaning that you can get a better car using car finance than you would have been able to afford had you bought it outright.
The three most popular types of car finance are car leasing, hire purchase and car loans. There are two types of car leasing products but the most popular is Personal Contract Purchase (PCP), a type of car finance that is very often simply called car leasing.
If you get a car on PCP, it means that you don't actually own it immediately and you lease it from a company for a specific period of time, which is generally between two and four years, but you have the option to buy the car at the end of the period for a price that you agreed up front. PCP can often enable you to afford a car that you may not have been able to had you used another form of car finance such as a car loan. This is because you don't have to pay for the full car at the outset. Therefore, your monthly repayments are greatly reduced. However, there are some drawbacks to PCP such as an annual limit on your mileage.
Next option is hire purchase, which is based on monthly repayments, but because you will own the car at the end of the agreement, your monthly payments will be higher than PCP and you'll also be expected in most cases to provide more money upfront.
Thirdly, there's a car loan that is in fact a personal loan. This is an option that can be used if need be, but it is the least popular with just 13 percent of car finance users opting for this product to fund their purchase. One reason for this is that loans are offered by lenders and as it is a personal loan they will have no security (they don't own the car) and for that reason in a tight credit market they are harder to obtain.
Using car finance might mean that you don't own the car outright straightaway, but having actual ownership of a car is something that can be less of a priority for some people than the ability to be driving around in a car that they can afford and want to drive. In fact, most people opted to use PCP for dealer finance in 2010. As with anything, no matter what your preferred option is, always compare prices before signing anything. When you compare prices make sure that you compare like with like such as the contract period, the mileage (if leasing) and the upfront payment.
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