Four Funding Options When Buying A New Car

There are several options open to you when you purchase a new car and these include:
1) a cash purchase
2) a car loan from the dealer
3) a loan from a bank
4) contract hire the vehicle
1) Buying your new car with cash
Buying your new car outright with cash from your bank account is probably the cheapest way of making the purchase. But, it involves a lot of preparation and planning for the purchase. For maybe a few years before you buy the car you have to be saving up each month towards the new car. On the plus side, as you are saving ready for the day when you can drive the car away, you are earning interest on the cash in the bank, which can also go towards the purchase.
2) Buying your car with a loan from the dealer
This could be the most popular and obvious way to buy a new car, but likewise it could be the most expensive. The problem is that the interest on the loan is calculated in a very basic way. If you borrow A�10,000 at an APR of 7.9% APR for 3 years, then the dealer will calculate 7.9% (A�790) and multiply it by the term, taking the interest charged up to A�2370. Look carefully at that calculation and you soon realise you are never getting reduced interest to reflect the money paid back. Worse still, if you pay off the loan after a year, then you still pay the full amount interest.
3) Buying your vehicle with a loan from a bank
Getting a bank loan, or other reputable lender to loan you the money, can be a lot cheaper. Here you are only paying interest on the amount of loan that is still to be repaid, so as you pay it off gradually over the term the interest is reducing and if you pay it off early then the interest stops. Effectively, the interest rate is a lot lower. Well worth asking for a few quotes from your bank and other lenders before you go out and look for the car, just look at the total amount to be paid over the term of the loan.
4) Contract hire a vehicle
Something a bit different. Here you are almost hiring the vehicle long term. Whoever you buy it off will work out the expected depreciation over the agreed term and that is what you are getting a loan for. At the end of the term you either give the car back, or pay a single lump sum to keep the car.

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