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Is Car Finance Right For You? Read This First

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If you’ve never had a car on finance before or you’ve chosen the wrong finance deal in the past, you may be sceptical about taking out a car loan – but there’s no need to be! Car finance won’t be suited to everyone and there’s never a guarantee that you’ll get approved either. So, the guide below has been designed to cover the factors that you should consider when deciding whether car finance could be the best way to fund your next car purchase. 

Types of car finance

Many drivers make the mistake of not researching the best car finance agreement for their circumstances and instead jump at the first approval they are offered. In the UK, one of the most popular ways to finance a car is through hire purchase. Hire purchase allows you to make monthly payments over a number of years that equals the value of the car you choose. Hire purchase is a form of secured loan which means the lender pays the dealer on your behalf for the car of your choice and then you pay the lender back each month. HP finance deals usually last around 3-5 years and the lender owns the car throughout the agreement. Once all payments have been made on time and the final option to purchased fee has been completed, the car will be yours to keep. If you fail to stick to the rules of your hire purchase deal, you can risk losing the car. 

Personal Contract Purchase (PCP) also tends to be a popular choice for drivers and can benefit from lower monthly payments than HP. This is because instead of spreading the cost of your chosen vehicle, you instead cover the cost of the car’s deprecation whilst you drive it. This amount tends to be a lot smaller and monthly payments are more manageable but if you want to take ownership of the vehicle at the end of the deal, you will need to pay a large lump sum. Alternatively, if you don’t want to keep the car after the agreement has ended, you can hand it back to the dealer or use the equity towards another car on PCP. It’s worth exploring each agreement in more detail before you choose one. 

Dealer vs broker finance

It can seem the most logical option to shop for cars at local dealers and then apply for finance on the car you want. This can be a great way to get a car, part exchange your current car and save time. However, car dealerships tend to have a limited number of car finance lenders and you may not be getting the best deal for your circumstances. A car finance broker on the other hand can compare a range of trusted lenders on your behalf and find the cheapest and most suitable finance package for you. You can then use your car finance approval at any dealer in the UK so you can buy the car you want, knowing you’ve got the deal that’s right for you. 

Fixed monthly payments

Car finance can be really beneficial if you want to know how much you’re paying, how long for and don’t want to worry about variable rates. Your car finance interest rates and monthly payments will always be fixed which means there’s no nasty surprises and your agreement won’t change throughout the term. This can make it easier to budget for your payments each month or set up a direct debit, so you never miss a payment! 

Low rates for good credit

Unfortunately, car finance is never guaranteed and there are factors that can affect your ability to get a car on finance. Lenders will require you to pass a credit check to see how you’ve handled credit in the past and calculate the level of risk. If you’re unsure of where you fall on the credit scale, you can use a free car finance eligibility checker to find out before you apply. The best rates can be reserved for people with better credit scores as they’re less likely to default on their payments. Missed or late payments can have a detrimental affect on your credit file and impact your ability to get car finance in the future. If you find yourself with a low credit score, you could consider improving it before you start applying for loans.

Get a better, newer car

One of the benefits of getting a car on finance is that you can usually get a better car than you would when paying with cash alone. Both new and used cars can cost thousands of pounds to buy outright and most people don’t have this kind of money to hand or don’t want to empty their savings to buy a car. With car finance, you can spread the cost into affordable monthly payments which means you can usually afford to get a newer, better car within your monthly budget.

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