Funding Options on a Pre-Loved Car
If you cross your fingers and hope for the best every time you get in the car, if you turn up the radio to drown out that funny knocking noise or dread the rain in case the sunroof leaks then it may be time for a new car!
Purchasing your next vehicle will be a big expense. Most people will hope to buy a nearly new or pre-loved car, but many people are unaware of the range of funding options available to them.
At Rivervale Approved Used Vehicles there are plenty of ways to fund your next new-to-you vehicle so you can pick the option that best fits with your budget.
Be a cash buyer
This is the most widely known way to purchase a vehicle. If you are a cash buyer it may give you a bit more negotiating power on the forecourt! But, where do you get the cash from? If you are lucky enough to have spare cash to save every month, it may be the money for your new car is ready and waiting in your bank account!
If your bank account doesn’t look quite that healthy it may be that you decide to take out a personal loan to spread the cost of your new vehicle. This money will be in your own bank account so when you come to purchase your new-to-you car you will effectively be a cash buyer. A word of caution here though … there are many companies you could organise a personal loan through, be careful. Check the company you have chosen is reputable and research the best interest rates to keep your repayments low.
Most people don’t realise we can arrange finance for you on your pre-loved vehicle. There are 3 options you can choose from which will all spread the cost of vehicle over monthly payments helping you to avoid a large one off cost. All types of finance agreement offer the same benefits to the customer. A finance option will allow the customer to drive a vehicle they may not otherwise be able to afford and contract lengths can be varied from 12-48 months to suit an individual’s needs.
- Hire Purchase
Hire purchase will spread the cost of your new-to-you car over 12-60 months. A finance company will provide the money to purchase your car, so they will own your car until you make your last payment. Once your last payment is made you will legally own the vehicle. Customers benefit from hire purchase as it spreads cost over monthly payments meaning you could own a vehicle you would not be able to afford outright. Deposits with Hire Purchase are typically low and repayment terms can be arrange to suit your budget. Interest rates are fixed so there will be no surprise increases in your repayments and no large last payment to panic about in the future.
- Contract Purchase
This funding option is rarely associated with a pre-loved vehicle, but is an option for buyers. In contract purchase the finance company funding your purchase will own the vehicle for the period of the contract which may run anywhere up to 48 months.
An initial payment which is usually larger than the subsequent monthly payments is required. At the end of the contract there will also be a balloon payment. This is a larger payment at the end of the contract. The effect of having larger payments at the start and end of the contract is lower monthly payments over the course of the contract. When the contract ends the customer will have a choice as to whether they would like to pay the final balloon payment or hand the car back to the finance company. Because of the option to hand back the vehicle to the finance company the value of the vehicle will be guaranteed at the end of the contract. The guaranteed future value is calculated through a variety of variables such as the expected depreciation and mileage. For the customer this means there will be conditions which must be adhered to during the contract. Customers will be asked to estimate how many miles they believe they will travel per year. If you go over this mileage allowance you will be charged for the extra miles you have travelled. The condition of the car will also be considered, so if you choose to hand the vehicle back at the end of your contract any damage outside of the finance company’s fair wear and tear policy will be charged to you. Excess mileage and damage should be considered if you choose to purchase your vehicle as it will affect the re-sale value of the car.
- Lease Purchase
Lease Purchase is very similar to a contract purchase in that there are larger beginning and end payments which make the payments in between lower. However, in a lease purchase arrangement the value of the vehicle at the end of the contract is not guaranteed. The end balloon payment is based upon the expected resale value of the vehicle at time and is fixed at the outset. Information from you about mileage will still be needed. If you travel many more miles than you expected or the condition of the vehicle is poor, you will still need to pay the balloon payment agreed at the beginning of the contract. This may suit some customers better as this means there will be no mileage allowance to adhere to, or fair wear and tear policies applied to the condition of the vehicle. This does also mean that there is no option to hand back your vehicle to the finance company at the end of the contract. The final balloon payment must be made and then the vehicle will legally be yours.
It can be confusing decided which option is best for your next new-to-you vehicle. Thankfully the Rivervale Used Vehicles team are experts, so if you ever need any advice they are here ready to help!
The comments above do not necessarily reflect Rivervale's views unless clearly stated.
20 January 2016
Written by Natalie Faughy