Car Finance: Here’s What You Need To Know

by Donna Ryder

Searching for your first, or next car can be a really exciting time. Whether you need a family car, a suitable vehicle after passing your test, or an upgrade from your old car, there are many aspects to consider when purchasing, including car finance. In this post, we will provide you with everything you need to know about car finance, so you can decide whether it is the best option for you.

What Is Car Finance?

Car finance is usually a more accessible way of paying for a vehicle, as long as you can keep up with your monthly repayments. This type of credit agreement is secured against the car you are buying and allows you to spread the cost of the purchase over a number of months. This makes the cost of the car seem much more manageable and allows you to see how much you will need to repay each month, making budgeting simple. Over the years, car finance options have become a lot more flexible, such as the introduction of bad credit car finance, making them a popular choice for many potential buyers.

What Are The Different Types Of Car Finance?

With a car loan, you simply borrow the money needed from a bank or lender directly to pay outright for a car, and repay an agreed amount back each month until the loan and interest are repaid. This is varies to car finance, where the car and finance are linked and you will pay each month up to the value of the car plus interest, rather than borrowing the money upfront. There are several different types of car finance available, including:

  • Hire purchase (HP) – with this option, you will pay a deposit up front, then pay fixed monthly instalments of the car finance plus interest. After the final payment is made, you will have paid the full value of the car and will be the sole owner of the vehicle.
  • Personal contract purchase (PCP) – like HP, PCP car finance means you pay a deposit and fixed repayments each month. However, at the end of the term, you can either keep the car by making a ‘balloon’ payment (a final lump sum to purchase the car), trade it in for an upgrade, or return it to the dealer.
  • Personal leasing – this is also known as contract hire and is similar to PCP. The main difference with this type of car finance is that you will not own the car yourself, but rather renting the car for a set period with an agreed annual mileage.

There is no one-size-fits-all solution when it comes to choosing the correct finance for you, so make sure you review your financial situation and what you need the car for. This will help to determine which type of car finance is best for you.

Where Can I Get Car Finance?

There are a variety of avenues for exploring car finance, such as a high street bank or dealership, but you can also find plenty of car finance providers online. By conducting your own research and drawing your own comparisons after shopping around, you can find the best deals for your needs. There are also tools available on the web to make comparisons quick and easy, these often feature a soft search that will not affect your credit score.

Am I Eligible For Car Finance?

Each provider will have different eligibility criteria, so you should look at lenders carefully to see whether you fit the requirements. However, most providers will ask that you are at least 18 years old, have a permanent UK address, and hold a provisional license as a minimum.

Car finance is a popular option with a variety of buyers, so it is something to consider if you are looking to purchase a car. Make sure you shop around to find the best deals with a provider that offers a car that best suits you.