Buying a car is a substantial financial decision. For some people, it takes careful consideration and planning. Apart from choosing how to finance the purchase, you also need to account for running expenses. But, since a car is already considered a basic necessity in modern societies, the best way to buy a vehicle is to consider all financing options and select one that is right for you.
Should you dip into your savings to buy a car?
Buying a car in cash is the cheapest because you will not have to shoulder the interest. However, not everyone has enough cash flow to buy a vehicle outright. Even if you have saved enough, you need to think about what the consequences are if you spend all your cash. Will you have enough left in case of emergencies?
Financing a car through hire purchase
If you go to a car finance giant, one of the financing options you can consider is hire purchase. Simply put, hire purchase means you only get to own the car after paying the loan in full. Usually, the deposit is around 10%, and monthly payments are fixed for a specific period.
Hire purchase is convenient and easy. Car dealers will arrange the agreement and can be quite competitive, especially if you want to buy a new car. However, you need to pay the loan in full before ownership gets turned over. Also, if you opt for a shorter payment period, it can get expensive.
Apply for a personal loan to buy a car
If you are confident about your credit rating, you can apply for a personal loan to finance your car purchase. But if you opt for this route, do not use your home as security. Before applying for a personal loan, compare interest rates from different lenders. Apart from the interest rate, check for other fees that the lender will charge.
Compared to other financing options, applying for a personal loan may get you the cheapest rates. On the other hand, you need to wait for the bank to approve your loan before you can buy a car. Also, a personal loan will affect your opportunity to borrow money from the bank for any other purpose.
Financing a car using a credit card
You can use your credit card to pay for a portion of the car purchase cost. Most credit card companies provide protection if you meet the minimum purchase amount. But, there are car dealers that charge extra for card handling. There are also car dealerships that do not accept credit card payments.
Peer-to-peer lending websites are gaining popularity these days. These platforms work just like social media, where you borrow directly from your peers. Nevertheless, your credit score is still a significant consideration. Your credit card rating affects the interest rate, and if you miss payments, it will be detrimental to your rating. In some instances, peer-to-peer lending sites may get you attractive rates, but that is on a case to case basis.