Articalize Directory | Free Articles | New Articles Daily | Understanding and Choosing the Best Car Finance Options

All set to buy a new car? Well it is time you knew the ropes of the car finance worlds too, so that you are not overwhelmed by the huge options/offers being thrown at you.

First things first- before you take any loan, you must have a repayment plan to free you of the loan within the loan period. You will need to read the fine print and have a clear understanding of the following:

• The Annual Percentage Rate (APR) – This rate should be the lowest as, low rates means lesser interest to be paid by you.

• Go through any requirements of additional payments. For instance setup fees etc.

• Always calculate the amounts you will pay back to the amount you were loaned. This will give you a clear picture whether a lower APR loan to be paid over a longer period may cost more in long run.
There are many types of car finance available for you, which are listed below:

Unsecured Personal Loans – These loans are based on your monthly repayment capacity (based on your income) and are given to you without using your assets (like your house) as security for the loan. The term of the loan and the monthly repayments are fixed. You cannot repay these loans early without incurring a penalty payment.

Secured Loans- If want to borrow a larger amount over a longer period, you can get finance against assets such as your home. In this case your monthly repayments are lower as compared to unsecured personal car credits. In the worst scenario of you being unable to make monthly repayments the car credit is repossessed using the assets used to secure the loan.

Personal Contract Purchase (PCP) – This sort of car credit is where you have to pay an initial deposit and then lease a car for a fixed time with lower monthly repayments. When the PCP agreement is prepared, the final payment required to be made by you is calculated based on the estimated future value of your car. When the agreement ends, you can choose any of the three options:

• Keep the car by paying the final payment.
• Give up the car and terminate the deal.
• You can also make a deposit for your next car by using the guaranteed value.

In this sort of car credit, you must keep in mind that the car is not fully yours till the final payment is made. This means it is not yours to resell. While exceeding the set mileage will incur extra costs; you may have PCP contracts that have maintenance of the car included.

Hire Purchase (HP)

This is a better version of the PCP, only that the initial deposit is bigger leading to lesser monthly payments. In the UK car market, many dealers offer Hire Purchase where you can buy your car over a set period, with fixed monthly payments. Here also you own the car only when the final payment has been made.

Now that you know the car credit options, you can now make a wise choice and get to drive your dream car pretty soon.