The popularity of car finance is on the rise. Over 80% of people in the UK choose to finance or lease a new or used every year! There are many different types of car finance and choosing the right deal for you can be tricky. However, the handy guide below makes it easier to decide of its right for you.
Can you afford it?
Car finance deals are great for spreading the cost of owning a newer car than you could normally afford. A car finance deal is broken down into affordable monthly payments and paid back over an agreed term. You should set yourself a budget for how much you can afford to pay each month and then also factor in the other costs of running a car. This can include MOT, road tax, car insurance, servicing, petrol and diesel costs and any unexpected repairs you may encounter. Make sure you don’t sell yourself short and keep up to date with your car finance payments. If not, then you could lose the car if the loan is secured against it and also negatively affect your credit score.
Which finance deal is right for you?
There are now many different types of car finance deal, however the most popular in the UK include personal loan, Personal Contract Purchase and Hire Purchase. Each finance deal is different and has pros and cons for each.
A personal loan is a straightforward way to fund your next car. You can acquire a personal loan by many banks and building societies and also many online loan providers. You can usually spread the cost of your loan over 1-7 years. A personal loan can be used for anything so you can be paid a lump sum that you were approved for and then go by yourself a car with it. It’s a great option if you want to own the car outright. You then pay the loan back over your agreed term till the end of the agreement. The monthly repayments for a personal loan can be a little higher than other options and it can also be higher to obtain a personal loan with a low credit score.
A hire purchase car finance deal is a simple type of car finance agreement which is secured against the vehicle. You will usually have to put down a 10% and then make fixed monthly payments to an agreed term. Your interest can be calculated by a number of factors and can increase if you have bad credit. However, there are also many no deposit car finance deals available within Hire Purchase. The loan is secure against the car, so you won’t own the car until you have made all the payments. This also means that if you fail to stick to the payment schedule then you could end up losing the car. You can obtain a hire purchase deal from a car dealer or by using an online car finance broker.
Personal Contract Purchase
A personal contract purchase is similar to a hire purchase deal where you make fixed monthly payments with added interest. However, within a PCP deal, you have 3 options at the end of the term. You can either return the car to the dealer, pay the resale value and keep it or use the resale value to go towards a new car or new PCP deal. If you are entering into a PCP deal, then you should check all the conditions within your agreement. You may have to agree to annual mileage limits and also can be charged for any damage to the vehicle.
Is your credit score good enough?
Car finance is a type of credit agreement so lenders will have to perform a credit check to see if you are eligible. Havin a higher credit score can mean you benefit from lower interest rates which reduce the amount you will pay overall. If you have a good credit score and a solid history of making all your payments on time and in full then lenders will see you as less of a risk. If you are applying for bad credit car finance don’t worry, not all hope is lost! There are many car finance lenders who can help you get car finance. You could also consider using a bad credit finance broker who matches you up with the most suitable lender for you and gets the lowest interest rate offered.