Car financing is actually easier to understand than it is believed to be. It is just a two-step process, which would be very easy if you already did your homework beforehand. This means that you already thought about your budget, what you want from a car and for how long you want to pay.

The first step is to find the right car deal. Whether you want to loan, hire purchase, dealer finance or lease the car is what you need to think about. The next step is to choose the car loan provider that best suits your needs.

Personal loan

With a personal loan, you borrow money directly from a bank, a creditor or a building institution to purchase your car. You get instant ownership for the car this way. This is actually the most popular way of financing a car and you can compare the annual percentage rates online. It is important to understand the APR you will pay so you know how much the loan is going to cost you in total. There is a headline rate that you most likely will not be getting because the APR will be based on your credit worthiness.

Hire Purchase

This way, you have to make a deposit of up to 10% of the price of your car and then monthly payments until you pay off the total amount. Until then, the hire purchase company owns your car and you have no legal right to sell it. Once all the fees are paid, you can assume ownership of the car. If your budget suits having monthly repayments for your car, hire purchase is the best option for you.

Personal Contract Purchase

If you are planning to trade the car in in the future, return it to the supplier or if you are not yet sure whether you want to keep the car after the repayments, the personal contract purchase deal is for you. With this, your monthly repayments are lower but you have an agreed mileage to keep until the end of the contract term. Whether you still have to pay a lump sum amount will depend on whether you are returning the car, keeping it or trading it in for a better one.

Personal Contract Hire

What this means is that you are renting a car for a couple of years and you have a mileage limit set on it. With this, you will not be able to keep the car at the end of the contract, which could be good if you don’t want to suffer any depreciation of the vehicle. You can just keep on hiring another one but you will never really end up having a car this way.

Dealer Finance

If you don’t like doing your homework beforehand, dealer finance is not for you. You will not find the best deal if you don’t know what’s out there and who’s offering it. Dealer finance is convenient and this is why many dealers take advantage of the situation. If you don’t mind paying extra for just availing a package that’s already there, dealer finance is fine. If you still want to go for this option but don’t want any added expenses than what you should actually pay for, compare packages first before deciding which dealer to go for.