How to Choose the Finance Agreement That Works for Your Budget
Choosing a car finance agreement is not a breeze because each agreement works differently and your needs will decide which one suits you best. Although you can take out an auto loan, there is no guarantee that you will qualify for it. As a result, you are left with one option – car finance in Ireland.
Auto loans are generally different from car finance because the former is a part of the latter. However, car finance options are more flexible than auto loans. If you cannot take out an auto loan due to one reason and the other, you may seek car finance options.
If you are buying a new car the first time, you may get confused. Car dealers usually provide two types of finance agreements – hire purchase and personal contract purchase. However, some dealers may also have an option of the lease agreement.
Each finance agreement works differently, and therefore it becomes more important that you choose the one carefully. Identify your needs – whether you want to own the car or return it and whether you will be able to manage monthly payments – and then decide on the deal. It is always suggested to do some research, so you do not end up falling into debt.
How do finance agreements work?
First off, you should know how the finance agreement works. You cannot decide which agreement will work to your advantage until you know how each agreement works.
At the end of the hire purchase agreement
When you enter into a hire purchase agreement, monthly installments go toward both the interest and the cost of the car. It means the total cost of debt is spread across the term of the loan. This is one of the reasons why you may have bigger monthly installments.
If you are signing a hire purchase agreement, you will have to look into your financial capacity. The length of the agreement can be up to three years. Make sure that you will not have any problems repaying installments. A hire purchase agreement is the best option for you if you want to own a car.
At the end of lease purchase
A lease-purchase agreement works differently from a hire purchase agreement. If you notice that you cannot afford to make monthly payments spread over the term in hire purchase agreements, you should consider lease purchase.
Monthly payments are smaller in this type of finance agreement because each installment goes toward only the interest payments. Personal contract purchase also requires smaller monthly payments, but they are slightly more than those of lease agreement because of higher interest rates charged by the lender.
As your lease agreement expires, you will have to make the balloon payment, also known as full and final settlement. It is the cost of the car. Note that you cannot escape making the full and final settlement because the lease agreement does not offer you the option of returning the car.
You will have to make the balloon payment. It can be quite difficult for you to pay the cost of the car in a lump sum. This is why it is suggested that you should carefully analyze your financial capacity at the time of signing the agreement. Although this seems to be cheaper than hire purchase, it can cost you much more if you fail to make the final payment at the end of the contract.
At the end of the personal contract purchase
You may find there is no such significant difference between leasing agreement and personal contract purchase because both types of agreements require you to pay smaller monthly payments toward the interest.
However, there is still a difference between both types of agreements. Personal contract purchase requires you to pay toward the depreciating cost of the car in case you return it at the end of the car.
If you sign the personal contract purchase agreement, you will have an option of either getting the ownership of the car by paying down the final balloon payment, or you can go away simply handing over the car to the dealer.
Apart from these two options, you can also swap your car for a newer model by opting for a new monthly payment schedule. Personal contract purchase is undoubtedly expensive because, at the end of the agreement, you will likely be paying a much higher amount than expected in case you cover the excess mileage.
All these finance agreements have their pros and cons. You need to identify your needs and budget capacity before choosing any one of them. If you intend to get ownership of the car, you should seek alternatives to hire purchase, which is an auto loan.
Why are auto loans more affordable?
If you take out an auto loan, the cost is extended over a period of months. Since the monthly payment will go toward both the cost of the car and the interest, you do not have to pay any amount when the loan agreement expires.
In the case of a good credit rating, you will likely get lower interest rates. Finance agreements are usually much more expensive because of depreciation and other costs.
For instance, you may end up paying more than someone else in case of a personal contract purchase because you may have exceeded the set mileage.
However, you do not have to worry about the mileage and all if you take out an auto loan. As you pay down the last payment, you get the title of the car. Therefore, you should try to consider the option for car loans in Ireland.
The bottom line
Choosing the right finance agreement can be challenging, undoubtedly, but with little basic research, you can get to know which one you should opt for as per your needs and budget.
However, if you are looking to get the title of the car, you should always try to seek an auto loan. This will certainly help you save a lot of money.
If you have any doubt, ask a car dealer how a certain finance agreement works, so you do not end up clinching a wrong deal.budgetFinancefinance agreement