Everything you wanted to know but were too embarrassed to ask about buying a car financially

If you don’t have all the money to buy a car, you can take advantage of financing, which means you negotiate with the lender for monthly payments over a set period of time plus interest.

Car loans have become the most popular way to buy new or used cars in recent years because you can spread the cost over an average period of one to five years.

Car financing allows you to own a vehicle without actually buying it. In fact, in most cases, it is the lender who owns it until the end of the financing period, after which you can buy it with payment in the form of a balloon, return it or exchange it for a new one.

In terms of the total cost of the car, you can save money by opting for a shorter financing term with higher monthly payments or by making a down payment, for example. B. in the house.

What types of car loans are there?

A personal contract purchase (PCP) requires you to pay a down payment of about 10 percent and make fixed monthly payments that cover the difference between the amount you borrow and what the company defines as a “one-time payment” — a hefty payment. which end is possible.

You pay this amount at the time of the trade, plus interest. Thus, you do not pay the full cost of the car.

The monthly payment is then calculated from this amount divided by the duration of the contract, which is usually 24 or 36 months, minus the down payment you made.

Interest rates usually start at around 4 percent, although some dealers may offer 0 percent.

At the end of the financing period, you can return the car to your lender, exchange it for a new one, or buy it right away with a one-time payment.

This is the most common form of financing due to cheaper monthly payments and is preferred by people who like to change cars more often.

Installment purchase (HP) is similar – it also requires a deposit of about 10 percent of the card price and monthly payments.

However, the car becomes yours after making the final payment. The monthly payments are higher than PCP because you don’t have to make a large down payment, but they are fixed so you know what you are paying for.

Interest rates have recently gone up for those with HP contracts, meaning it might be worth considering your options carefully.

If you are sure that you do not want to buy a car, but only rent it, then leasing is the best option, because you will have to return the car after the end of the contract.

You do not need to pay anything extra if you do not exceed the mileage limit and there is no damage.

Leasing is generally only available for new vehicles, and like PCP, your payments only cover depreciation on the vehicle, so they tend to be lower.

However, it can be difficult to find cheap car rentals if you have bad credit. This form of financing is often used by people who want to drive cars they cannot afford.

Finally, you can simply take out a personal loan from a bank or building society to pay for your car. Although this involves higher interest rates than financing a car, the car is yours from the start.