While you're browsing the websites of car dealerships or used car classifieds, it's easy to forget that significant numbers of us don't purchase a car solely using whatever cash we might have sitting in our bank accounts.
It was reported in 2019 that about nine in 10 privately purchased new cars bought over the previous 12 months were paid for through a finance deal of some kind. And if you're reading this, we suspect that you're considering borrowing money in order to fund your own next car purchase – whether you have your eye on a new or used vehicle.
Paying for a car with a finance deal doesn't necessarily mean the purchaser lacks the money to buy the car outright. Some people might have the funds available, but like how car finance allows them to spread the cost over a longer period of time leaving money in their bank account for other, predictable and unforeseen expenses.
Even if you do expect to approach a lender to enable you to buy your next vehicle, not all the options before you will be the same. For a lot of people, it comes down to one of two choices: taking out a bank loan or seeking out dedicated car finance.
What are the merits – and disadvantages – of a bank loan?
The term 'car finance' tends to refer to the kind of finance deal that is more directly connected to the car manufacturer or dealership you're purchasing the car from – and we'll explain that relationship in greater detail in a moment.
A bank loan, though – as the term suggests – entails borrowing funds for the purchase from a bank. This enables you to bypass the whole manufacturer or dealer finance model; in effect, you borrow whatever funds you think you'll need for the car purchase. You can then buy a car from whoever or wherever you like. In effect, you will be acting as if you were a cash buyer.
The lack of a direct connection between the loan you've taken out and the manufacturer or dealership does allow you to avoid some of the terms typically associated with car finance deals, such as mileage limits. But on the other hand, interest rates for personal bank loans are often higher than those associated with a car finance deal obtained through a manufacturer or dealer.
Something else to keep in mind is that while a personal bank loan would give you the freedom to do whatever you wish with the car, you will still need to pay back the loan, even in the event that you sell the vehicle before you have finished repaying the loan.
So, why might I consider car finance instead?
Now, you might expect our team at Car Finance Genie to speak more favourably about car finance… but there are some genuine reasons why it might represent the best option for you. Many of those reasons are closely related to our philosophy of helping to make finance available to people who may have been turned down by other lenders, or who lack a deposit to pay for such a deal.
Unlike the situation with a bank loan, for example, we are not the lender. Instead, we have assembled a trusted network of lenders, which we work with to help bring the prospective borrower the car finance deal that best caers to their own budget and needs.
This, combined with the tendency for a car finance deal to be cheaper than the equivalent personal bank loan, might make you more confident of getting the perfectly tailored deal for you if you take the car finance route.
We mentioned deposits above, and this is another important aspect of comparing a bank loan with car finance. Yes, on one hand, you won't need to pay a deposit if you opt for a personal loan from the bank, you simply borrow the amount you need. But the downside of not paying a deposit is that your monthly repayments will be higher. So, you might actually appreciate the option to put down a deposit anyway.
If you really don't want to pay a deposit, or don't have the cash to do so, it still might be possible to arrange a no-deposit car finance deal.
Tread with care to ensure you make an informed choice
The above doesn't cover every single advantage and disadvantage of choosing car finance over a bank loan or vice versa. It is therefore crucial to do your research, while carefully considering your own circumstances, preferences and needs. You can always request a no-obligation quote to help you weigh up the pros and cons of each option, helping you get behind the wheel of your desired new vehicle sooner than you might think.
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