Many people have a love-hate relationship with cars. On the one hand they provide a convenient form of transport to take us to work or shopping, but on the other, they are costly to run in more ways than one. New cars are very expensive but generally reliable whereas old bangers cost little to buy for a fortune to maintain. Still, despite the risks inherent in buying a used car, it is still the most economic option for most of us. So what are your options if you need to finance the purchase of a used car?
Interest rates on lending are at an all-time low right now, so personal loans are a popular way to finance a used car. Most banks and online lenders are happy to let you borrow money to buy a car if your credit rating is good, but if it isnt so good, you may need to approach a specialist lender (click here for more information).
Virtually all dealers offer finance to buyers hoping to take home a used car. Many dealers will actively encourage you to take on their finance, as they earn commission for each successful finance agreement. However, do check the small print on the finance agreement before you sign on the dotted line, as it may be a more expensive option than taking out a personal loan.
Another important point to be aware of is that when you buy a used car on Hire Purchase, it doesnt actually belong to you until you make the final payment. There may also be a balloon payment at the end of the agreement, so bear this in mind.
For cheaper cars, a credit card is a useful option. If you have a fairly high credit limit, you could put your purchase on the card and pay it off over several months. Interest free credit cards mean you effectively have the benefit of a zero interest loan. However, regular credit cards typically charge around 16% APR, which can be expensive if you borrow several thousand pounds.
Dont dismiss the idea of borrowing money from a relative. As long as the person can easily afford to loan you the cash, it shouldnt be a problem. Agree a repayment plan in advance of the loan and decide whether you are paying interest on the sum borrowed. That way everyone is happy and there are no big family feuds over an old hatchback with dodgy wheels.
Using savings is the cheapest way to fund a used car purchase, but dont leave yourself short since you may need to pay for repairs.
Leasing is a useful way to own a more expensive car without the hassle of maintaining it. The main difference between leasing a car and taking out finance is that you never actually own the vehicle. This doesnt work for everyone, but it can be a good deal for some people.
Never buy a used car without taking a knowledgeable friend along for the test drive. Used cars dealers are often wolves in sheeps clothing.