When shopping around for a new car, there are many different financial factors to consider. The car’s base price and the added cost of any customised finishes will be the first thing to think about, but additional factors such as insurance, maintenance, depreciation, and fuel will need to be added to this for an accurate picture of what the true cost of the car will be. Interest rates and fees associated with car financing are a further expense to consider. Just as you would shop around to find the best deal on a new car and the most advantageous insurance rates, it’s also worth comparing financing options to find the best match for your budget.
Paying in Cash
The best way to pay for a new car is with cash, if you can afford it. This eliminates interest, which can save you thousands of dollars in the long run. Many dealerships will also offer additional discounts for customers paying in cash. It’s important to remember that dealers make their money from selling finance packages, however, so you don’t want to reveal that you plan on paying in cash until the final stage of negotiation to keep costs low.
Personal Contract Plan
Paying for a brand new car out of pocket can be quite costly, so the majority of buyers will choose a financing plan. One option that will be presented to you at the dealership is a personal contract plan. This type of plan offers low monthly payments and flexibility. The buyer puts down a deposit of roughly 10% and agrees on a set annual mileage level, along with a guaranteed future value for the car. The buyer then makes monthly payments for a two or three year contract, and at the end of the term has the option of either paying off the remaining value of the car or turning it in to the dealer. The car could also be used as a deposit towards a new model.
A similar option is to enter into a car leasing contract. With this type of financial plan you wouldn’t really be planning on potentially buying the car at the end of the term as you would with a personal contract plan. Instead, you would turn it in to the dealer when your contract expires. If you love perusing review sites like Motoring and taking new cars like the latest Mitsubishi Triton for a test drive, you may enjoy having the chance to drive a new car every two years with a rental contract. One downside to this is that mileage is usually restricted, with heavy fees for going over your annual limits.
Although auto dealers provide a number of financing options, a personal loan usually is more financially advantageous if you have good credit. Personal loans can be arranged directly with your bank or credit union, often at lower interest rates than you would qualify for at the dealership. Although longer term loans will lead to lower monthly payments, you’ll pay more in interest over time so it’s best to pay off the loan as quickly as possible.
It’s a good idea to weigh all of these options carefully when you’re in the market for a new car to find the best fit for your personal situation. Don’t be afraid to ask for quotes from several dealers and shop around to find the best deal, both in terms of monthly payments and interest rates.