Arranging finance for your new car

by under on 17 Dec 2009 12:10:51 PM17 Dec 2009

Arranging the finance for your new car can often be as difficult as finding the right car to buy. To save you time and money, presents these tips for choosing the best finance for your new car.

When it comes to financing your new car, it usually pays to ‘shop around’ for the best deal, just as you would for the car itself. With a broad range of finance options available, it is worthwhile taking some time to research and compare to ensure you make the right choice.

Many people will find a conventional personal or car loan is the simplest way to go. A conventional loan involves borrowing a one-off lump sum from a bank or finance company, which is repaid in regular installments over a period of time. The repayment period usually varies from two to five years, although some banks can offer longer terms. Remember that while your regular installments will be less if you choose a longer loan period, you will end up paying more interest.

Most lenders are able to offer pre-approval for car loans, so it is a good idea to arrange your loan before you start shopping for your car. That way you know how much you can spend and will not be tempted to use finance offered by the car dealer, which often carries high interest rates.

Some businesses and consumers may choose a car lease or car hire purchase option. In both cases, monthly payments are made until the end of an agreed rental period, at which point the lessee pays the residual amount and takes over ownership of the car. Chattel mortgages work in a similar way, with some extra tax incentives for businesses.

Operating car leases are more like a long-term car hire and do not require you to buy the vehicle at the end. These are particularly suited to users who are hard on their vehicles and need to replace them regularly.

Lease and mortgage finance options offer some significant tax benefits to businesses, but they can be complicated, so it is worth talking to an accountant or business adviser to make sure you understand the choices available. Indeed, consulting a professional is a good idea for anyone who is looking to finance a purchase as important as a new car.

Whichever car finance option you end up choosing, give yourself time to make a considered judgment so you don’t overextend yourself – your new car should make your life easier, not weigh you down.

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