Despite the credit crisis, the majority of people use car finance to purchase their next vehicle. The car finance industry has been one of the few buoyant sectors in the financial world throughout the recession. The motor trade itself has suffered from the downturn badly, with shortened working hours, breaks in production and recently the problems caused in Japan by the Tsunami. Lending criteria for all types of finance have tightened, adding to the potential for disaster in the car industry. However, there are still a number of ways to arrange car finance and the growth the industry has experienced has been in part thanks to a new type of product modelled on the personal loan.
Financial factors
Most of us could be forgiven for thinking twice about taking on further financial commitments at the moment, but car loans are one area that we don’t always have a choice. Buying a car is one of the most expensive purchases we make so finding the right deal and making the most out of the money you borrow is an important factors.
New or second hand
New, or nearly new, cars have a range of benefits in terms of potential cost efficiencies. Fuel efficient models offer savings over the longer term; fuel prices are consistently rising at the moment, a fact which is unlikely to change. Repair bills and recovery charges are costly, especially if you’ve saved by cutting the breakdown cover. The newer the car, the less likely you are to face on-going repair and maintenance cost. These factors are where the cost of finance can outweigh the cost of buying a cheaper, older car.
What finance?
The finance options available for a new car range from raiding the family savings accounts, going mad with the credit cards, extending your mortgage or to finding a loan. Loans tend to fall into dealership finance options or personal loan categories. Personal loans designed specifically for car finance are now widely available and will often offer the most flexibility. With the housing market uncertain, extending your mortgage is not a good idea when buying an item that will depreciate in value. Credit cards are usually the most expensive option while raiding the savings accounts is probably not a good plan at the moment, even with interest rates low and most peoples’ savings performing badly.
Balancing budgets
Car finance based on the personal loan structure has the advantages of offering competitive rates, making it affordable to buy a better model and the opportunity to shop around amongst the dealerships in your area to get the best deal on the best model. With the savings on fuel and the reliability factor of newer cars, the loan repayments help to spread the cost of your money-saving purchase and can usually balance out the costs of owning the car.