Buying a car is a major responsibility, and most people do not have the resources to purchase one without some financial assistance. Even if they do have enough funds to buy a car, they may want to keep some money saved to use for unexpected needs or emergencies. Buying a car usually means finding some kind of financing, and there are several types of options available. It will be helpful to consider the different financing alternatives before you shop for a car, so that part of the process will be settled when you find the vehicle that you want to buy.

Unsecured Personal Loans

You do not need to use any security to obtain an unsecured personal loan. You will not even use the car that you buy as security for this type of loan, but you will need to have a good credit profile to show the lenders that you have the ability to make the repayments.

• The length of the loan and the repayments are fixed.
• You must be able to afford the monthly repayments.
• You will own the car outright, and you can sell it if you choose, but you must keep making the repayments every month until the loan is paid.
• There will usually be a penalty if you want to repay the loan before the end of the fixed loan term.
• You may select a deferred loan with lower monthly payments and one high final payment.
• You may select a flexible loan because it may permit you to skip a few of the monthly repayments without a penalty, or you may be able to pay the entire loan balance early without a penalty.

Secured Loans

You can get a loan using your assets as security to guarantee that you will repay it. You can use the car you buy for collateral, but if you use your home as security, you can borrow more money and take a longer time to repay the loan.

• Because the lender will have security to assure your repayment, you can borrow a larger amount than you can when you have a loan that has no security.
• You can get a secured loan with a longer term for repayment.
• You can usually get a lower monthly repayment amount with a secured loan.
• The lender may repossess your security if you fail to make the repayments.

Personal Contract Purchase (PCP)

You can lease a car for a fixed time by paying a large deposit and making low monthly repayments and a high final payment (balloon payment), which is determined by the car’s expected value at the end of your contract.

• The terms are usually flexible, and payments can be from 1 to 3 years.
• Personal contract purchase payments are usually lower than other types of car loan payments.
• You do not own the car, and you cannot sell it, until you make the final payment.
• You may have car maintenance included in your PCP contract.
• You will be charged if your mileage goes over the set limit.
• When the fixed term of the PCP ends, you can pay the final payment and own the car, return the car without any more
• payments or buy another car using your guaranteed value for a deposit.

Hire Purchase (HP)

Hire Purchase is a simple way to buy a car by making monthly payments for a certain number of months, but you will not own the car until you settle the debt. You will be responsible for maintaining the car and keeping insurance on it, but the dealer will own it until you make the final payment. If you decide that you do not want to keep the car for some reason, you can return it to the dealer, settle any charges you still owe, and then you can shop for a different vehicle.

• The usual lease term is 24 to 36 months.
• The dealer may ask for a deposit.
• The amount of the deposit you make, the car’s price and the length of the agreement determine the monthly payment amount.
• If you make a larger deposit, your monthly payments will be smaller.
• There may be a charge for settling earlier than the agreement states.
• You will not own and cannot sell the car until you make the last payment.

When you are ready to shop for a new or used car, study your options, and make the decision that will work best for your circumstances, and enjoy your new or used car.