Car finance: Expert explains different ways to buy a car

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Many motorists may not be in the financial position to buy a car with cash savings, with some looking at alternative options to purchase a new vehicle. Experts at Shawbrook Bank Personal Loans have detailed the different methods drivers can use to help put money towards a new car, especially with a boom in electric cars.

Hire purchase

Hire purchases spread the cost of a car between an initial deposit and payments made in instalments, which are subject to interest.

Whilst drivers won’t own the car immediately, it will be owned outright once all the regular payments and fees are paid at the end of the term, which is normally arranged by a car dealer.

These types of purchases typically have flexible terms, the interest rate tends to be fixed, and a relatively low deposit is required upfront.

Personal contract purchases

A PCP is similar to a hire purchase in that drivers will pay an initial deposit with monthly payments over a fixed period – usually 24 or 36 months.

However, rather than just paying small monthly instalments, a large portion of the amount drivers borrowed will still be left to pay at the end of the loan, which is often referred to as a “balloon payment”.

At the end of the fixed period, drivers have the option to buy the car, or sell it to pay off the remaining balance. It is vital to remember to keep the car in good condition and within the agreed mileage, as drivers could be subject to penalties.

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Leasing

Leasing is essentially a long-term rental, with drivers paying a fixed monthly fee to use the car for an agreed time period and number of miles.

Drivers need to put down an initial deposit, but the monthly instalments are typically much lower, providing flexibility to the user.

This can suit driver’s needs and can help them save money compared to buying a car outright.

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