If you are planning to purchase a new car, you will have a variety of payment options. With so many options available – from a lump cash payment to a loan – it can be difficult to decide upon the best payment method for you. Following are the four main car payment types, along with common pros and cons for each;
Pro’s – If you do have the cash available, it can be a great payment method for your new car – in fact, it’s still a very popular payment option for many customers. By making a cash payment, you will avoid paying out for added interest (as to be expected with the majority of car loans or dealer finance arrangements). By paying in cash you could also speed up the purchasing process.
Con’s – Safety is an issue when you are carrying large amounts of cash – therefore, it’s wise to have someone with you when you visit the garage. Also check with your bank before you make the withdrawal – some banks may need pre-notification for larger amounts. Also ensure that you get the appropriate receipts when paying by cash – cheques and loans leave a ‘paper trail’, however, cash payments will need monitoring.
Pro’s – Credit cards can be a very easy way to pay for your new car – and to this end, they are a very popular payment choice. Many credit cards now offer a high level of customer protection – meaning that your purchase should be covered. By using a credit card you could also speed up the purchasing process and you will have instant proof of your purchase on your credit card statement.
Con’s – Be aware of credit card charges – unless you intend to pay off your transaction straight away, you could be adding a lot of money in interest charges over the longer term. Also be aware of payment protection – make sure that larger transactions are fully covered and be careful when sharing your credit card details (i.e. only provide them to established and secure dealers/garages).
Pro’s – Many people opt for dealer finance as part of an offer – i.e. a part-exchange programme. Certainly, dealer finance can be a very quick and easy way to purchase your new car – and, as the entire process will be dealt with exclusively by the dealer – this payment option could help to significantly speed up the purchasing process.
Con’s – Many people are persuaded into getting dealer finance by dealer representative ‘hard-sell’. It’s important to check the terms and conditions of the finance before you sign anything (i.e. always read the small print). You will need to ensure that you are getting a good deal in the long-term – beware of high interest dealer finance plans, or misleading introductory offers – you could end up out of pocket over a longer period of time. Also note that the majority of dealerships who offer finance will perform a credit check on you as standard – you may also need to meet certain requirements to obtain credit (i.e. a good payment history and have a set monthly income).
Pro’s – The great thing about independent car finance is the ability for a customer to shop around – you can make sure that you get the best possible car loan for your purchase. You can compare a number of deals to get the best interest rate and spread the cost of your purchase over a longer period of time. Car loans can be a great budgeting option for anyone who doesn’t have the spare cash available to purchase a new car. Many people also prefer to get finance from an external company (i.e. a loan company/bank that is not affiliated with the dealership or garage).
Con’s – As with any other loan, you will need to put in a little extra leg-work to find the best possible deal. It’s important to read the small print and clauses in a car loan – many will offer great introductory rates, then higher payments in the future. Always make sure that you can easily afford your car loan payments to avoid potential problems in the future. It’s also worth noting that the majority of companies who offer car loans will perform a credit check on you, and they may not be able to lend the money to you if you do not meet the standard financial requirements (i.e. you may need to have a good payment history and have a set monthly income).