Ways to finance a new car

A new car can be a big purchase. For many people, cars are among the biggest purchases they will ever make except for property. This can leave many people unsure as to how best to fund their new vehicle purchase. There are a number of ways you can finance the purchase of a new car, and some of the most popular options include the following.


If possible, it is best to pay cash for your car. This will eliminate any interest payments and work out cheaper in the long run. However, “possible” in this context doesn’t just mean managing to scrape the cash together. If paying cash for the car would leave you in a difficult financial position, or at risk should any other expenses turn up unexpectedly, you may want to look into alternatives.

Dealer Finance

Most dealers offer finance options for both used and new cars, which is sometimes called hire purchase. This can be an easy way to make the purchase of your car more manageable. They are essentially providing you with a loan which is secured against the vehicle. As with any loan, you pay it back in instalments along with interest. In the long run, you pay more, but the fact that payments are spread out means that the cost is still more manageable. As the loan is secured against the vehicle, you do not truly own your car until you have paid off the last instalment.

Third-Party Loans

Specialist car loans and other personal loans from third parties can also be a way to finance the purchase of your new car, similar to the ones on offer from Evolution Money. Other specialist loans may be available for other types of vehicle, such as bike loans. These effectively put you in a similar position to a dealer’s own finance arrangements. You have a loan secured against the vehicle which you pay back in instalments. You just pay the instalments to a loan provider instead of the car dealer, and from the dealer’s point of view you have purchased the car in cash. The advantage is that it may be possible to get better rates from a third party than directly from the dealer, especially as dealers often trust the fact that most people tend not to shop around for finance. Potentially, looking at other finance options can leave you paying less in the long run and having lower instalments to meet. For example, according to the loan professionals at BB&T, home equity loans are a viable alternative to dealership financed auto loans because they “carry lower interest rates than typical auto loans and can be repaid over a longer term.” This not only leaves you paying less on a monthly basis, but also paying less on interest in the long run.

Personal Contract Plan

This is, in a sense, a variant of a dealer finance plan, and it will usually result in your making lower payments. With a personal contract plan, you essentially purchase the car for a given period. The dealer estimates how much the car’s value will depreciate over the course of that period, and you pay this amount in instalments. Then you are left with three options. You can pay off the car’s remaining value by giving the car itself back to the dealer. Alternatively, you can pay off the rest of the car’s value in order to keep the vehicle. Thirdly, you have the option to simply exchange the vehicle for a new one and start a new personal contract plan. Over the course of the contract, this will generally be cheaper than buying the car and paying in instalments because you are only paying for a portion of the car’s value. However, when the contract ends, you will have to give back the car or find its remaining value all at once. If you have grown fond of the vehicle and want to keep it, but will find it difficult to find the car’s full remaining value in cash, this choice can be an unattractive one.