Published on May 31st, 2019 | by Bibhuranjan0
Is car finance right for you?
The popularity of car finance is increasing, and more drivers than ever are choosing to finance their next car. If you’ve never had car finance before you may be a little unsure and wondering if car finance is for you. As car finance is a legal agreement, many consumers are wary of signing up to a long term deal. Refused Car Finance look at the different types of car finance and some common questions to help you decide if it’s the best funding option for your next car!
Do you know the different types of car finance?
Many people believe that car finance is just one type of agreement, however there are three main types of car finance deals that are most popular. Hire Purchase, Personal Contract Purchase and Personal Loans are all ways in which you can finance your next car. They all have the same principle of lending a certain amount of money and paying it back monthly over a term, but they are all slightly different.
A personal loan is a great way to finance your next car. These loans can be used for anything so it means that you can use the finance to get the car you want! Because you also pay for the car outright, you also become the automatic legal owner of the vehicle. Within a personal loan agreement, you borrow the amount you need for a car and then pay it back over an agreed term length.
Hire Purchase (HP)
Within Hire Purchase, you usually pay a deposit, however there are many no deposit car finance options available today. You make fixed monthly payments over an agreed period for the car you want and then once the final payment has been made, you are the legal owner of the car.
Personal Contract Purchase (PCP)
Like Hire Purchase, Personal Contract Purchase allows you to fund your next car and use it till the end of the contract. You make monthly payments to a fixed term but at the end of your agreement you have three options. You can either return the car to the dealer, pay the final balloon payment and purchase the car or use the Guaranteed Future Value of the car to start a new PCP deal on a different car.
What is your credit score like?
For years, people believed that car finance was offered only to people with good credit scores. Whilst a good credit score will probably mean you get a better rate offered by a car finance lender, it’s not impossible to get car finance with bad credit with a reasonable rate! Car finance is becoming more accessible for many people with different circumstances. Many car finance companies now focus on current affordability rather than credit history, meaning that if your credit score is a little on the low side, not all hope is lost!
Do you have a deposit?
When you put down a deposit, you are reducing the total amount of your loan. The bigger the deposit you put down, the less you will pay in the long run and it can lower your monthly payments. However, not everyone has that sort of cash to pay upfront! There are many options for no deposit car finance, which means you can keep your savings for a rainy day! Car finance with no deposit helps you spread the total cost of owning your car into affordable monthly payments.
What is your budget?
Whilst car finance enables you to make smaller regular payments, there are also additional costs associated with buying a car such as car insurance, road tax, fuel costs, MOT and service expenses, unexpected repairs, breakdown cover and more. With this in mind, you should factor in all your monthly costs when working out your budget for car finance. You should be realistic when working out your budget as you’re more than likely to be tied into a finance agreement for a couple of years and don’t want to find yourself struggling to make repayments.
Which type of car do you want?
When car finance was first introduced, it was typically only available on new cars. There are many great finance options available on new cars however, there are many options for used car finance too. You can get car finance for a range of different cars including automatic or manual cars, 7 seater MPV’s, electric or hybrid vehicles and many more!