There are lots of ways of funding a car purchase, besides taking out a personal loan. Predictably, some make more sense than others - in some cases, a lot more sense.
The key, as ever, is to look at what it'll cost you to borrow the money. Some methods of borrowing money are targeted at people who expect to pay back the cash very quickly (payday loans being the classic example) - others are better for those who don't mind paying a reletively large amount of cash, but over a longer period.
The key, as ever, is to look at what it'll cost you to borrow the money
These are the methods you should be considering if you need to borrow cash to buy a car:
- Unless you intend to pay off the balance quickly, using a credit card makes little sense. However, sometimes you can get a six-month interest-free period, giving you that bit more time to pay off the balance without incurring excessive charges.
- Overdrafts rack up stiff charges, so this isn’t a good route to take. However, if you need to borrow for a brief spell, it may be okay because overdraft interest rates are calculated on a daily basis.
- Sometimes you can take out Personal Contract Hire, which allows you to pay only for what you use. The initial deposit is very small or non-existent, and you pay monthly instalments that usually include servicing and maintenance, and often cover depreciation. These payments are generally less than with a PCP or hire purchase, which may sound ideal, but you'll never own the car and these schemes are not widely available.