Different Options For Car Finance

If it’s HP PCP, leasing or HP the car, our guide to finance provides a variety of choices available to purchasing a brand second-hand or new vehicle

If you’re interested in getting out on the road, but aren’t able to or aren’t willing to pay the full price for an automobile upfront Car finance might be the best option for you.

There are many options available in the UK according to your budget and your personal preferences.

What is car financing?

The term “car finance” is used as a generic term that refers to a variety of choices that allow you to take out the cash to purchase the latest or used car and lease the car for an time prior to the possibility of purchase it in full.

How do car financing works?

Whatever financing option for your car you pick in the UK it will involve taking money from a lender to finance the purchase of an un-owned or new vehicle, and the payment of an initial deposit and monthly installments.

When the agreement – based on the kind of car finance you select you’ll have bought the car for yourself, and have the option of buying it, or take it back to the dealer and then go on a walk or sign another finance contract.

It is also important to adhere to the conditions of the contract , such as adhering to any service plan that does not exceed the stipulated annual mileage.

What are the various types of financing for cars?

Car loan

If you’re unable to purchase a vehicle outright A car loan might be a better option to borrow than other kinds of financing for cars. You can choose the amount you’re looking for and the time you’d like to borrow it for. After approval, the loan will be deposited directly into your account, allowing you to purchase the vehicle at a private sale or a dealership. Then you can repay the loan by instalments. To secure the lowest interest loan, ensure you have a credit report as high as it is possible to be prior to applying.

Personal contract purchase

When you purchase a personal contract (PCP) you make a small down payment and then take out an initial loan to cover the cost of depreciation on the vehicle (how is the amount the bank believes the car will lose in value during the period of the loan). Then you pay monthly with interest for the term you agreed upon before deciding if you want to exchange the car for a new one and then start an entirely new PCP plan for the new car, hand it back to dealer, and go on your own, or make the one last installment (the lump sum) in order to hold the car.

Hire purchase

With a hire-purchase (HP) arrangement that you sign, you pay monthly payments to rent the vehicle – that includes the loan and interest. They typically require an initial deposit of 10%, but generally the higher your deposit, the better the terms of your financing will be. You decide on the payment period you’d like to have generally for up to five years, and when you’ve completed an entire payment vehicle is yours to keep.

Personal contract for hire

When you sign a personal contract rental (PCH) also known as leasing from a car, you lease the car of your choice for several years, before returning it at the expiration of the lease. As with other finance contracts that you sign, you typically pay a deposit and then make monthly payments. You can also include servicing plans in your agreement to ensure that you return the car in good shape and avoid penalties.

What will car financing cost me?

The cost of financing a car comprises of the deposit, regular instalments, and any final payment should you decide to purchase the car at the end of your contract. Additionally, there could be additional charges in the event that you have to pay for maintenance and repairs, or exceed the mileage agreed upon.

Which option for financing is most suitable for me?

The best option for you is contingent on your personal preferences and financial circumstances, but there are some things to consider:

Are you in search of a brand new or used vehicle? There could be various financing options for your vehicle if it is used

What’s your score on credit? If you have better credit will allow you to access more financial deals, and with lower interest rates.

Would you rather have more frequent monthly payments, but still own the car in full? If you take out a loan, you’ll be the owner of the car from the first day and with a PCP arrangement or leasing you’ll not own the car for the entire duration of the contract For instance,

Are you planning to sell your vehicle at the conclusion of the deal? Hire purchase and car loans arrangements are usually best suited if you wish to own the vehicle

How will you be driving your car? Some financing options have limits on the mileage you can drive and can impose penalties in the event that you exceed the maximum amount allowed.

Do I qualify for car financing with a low credit score?

Car finance companies take a look at your credit background and credit score to decide whether they should lend to you. If you’ve had problems with debt in the past and have had a poor scores on credit reports, you may not get access to the best deals and will typically be charged more interest.

However, having bad credit doesn’t need to mean that you’ll be denied credit for a car. We have a network of specialists working on car financing for those with people with bad credit. They may be able match you with the perfect finance or loan for your car.

How will the finance term be restructured at conclusion of the term finance?

The kind of car loan you’ve chosen from Motorlend will affect how you’ll be able to proceed at conclusion of the contract in the following manner:

The personal purchase contract: you are given the option of making a one-time ‘balloon’ amount to purchase the vehicle. You can also leave it in its place and return it or sign an entirely fresh PCP contract.

Hire purchase: You’ll own the vehicle once your final installment has been paid.

Personal contract hire or leasing: You will return the vehicle at end of the lease. You may opt to leave or to sign a new lease.

Frequently asked questions

Do I qualify to receive a car loan?

In order to be eligible to get a car loan you’ll have to satisfy the criteria of the finance company. This will likely be a requirement of being 18 years old or older and being an UK resident. Since you’re signing an agreement with a creditor, you’ll be required to prove that you have the funds to make regular payments. This means the lender conducting a credit assessment on you. The better your credit score will be, the more likely to be approved to be a candidate for a loan.

What will happen if I have to pay the contract in advance?

The decision of whether paying off the contract in advance is a good idea is dependent on your particular situation, the kind of car loan you’ve taken out , and the terms of the agreement. In most instances it is possible to pay off a contract early will save you money by paying lower interest in the long run. However, there might fees for penalty payments to consider and so make sure you read the conditions and terms.

What are the options for financing the purchase of a car?

There are a few ways to finance the purchase of a car:

When buying a car using credit card trying to utilize credit card with 0% interest, a buy credit card typically the best choice since they generally offer decent time frames for interest-free. When the interest-free period is over your rate on the card is most likely to increase, which means you’ll have to pay off what you borrowed , or you might want to consider changing to a 0% credit card for balance transfers.

Credit cards provide legal protection in the event of a problem when you purchase something for example, your vehicle is damaged. Be aware that certain dealerships do not allow purchases made with credit cards due to the fact that they are charged with a cost for transactions made with credit cards, which they aren’t able to pass on to their customers.

If you are buying a car using cash buying a car using cash from your pocket is cheaper than financing a car since you don’t need to pay interest. If you’re not able to afford all the cash is worth conserving as much as you can to meet the same purpose. The less of a loan you get or the greater the amount of deposit you are able to place down, the less you’ll have to pay in total.

It’s also worth looking into the safety benefits of financing a vehicle which allows you to return the car to the dealer if defective, and get free repairs and service sometimes being included in the deal.

How do you make 0% car finance work?

The 0% interest rate financing arrangement means that you be able to spread the cost of the vehicle over a predetermined time frame, and make monthly payments without having to pay interest in addition. You’ll typically need a solid credit score and credit history to be granted approval. This is how it works

Get a loan with no interest to purchase the car.

Repay the loan by instalments during the period of agreement.

Pay the last installment and purchase the car in full

Beware of any scams that have 0% financing. A financing deal with no interest may be appealing, but dealers might try to recover the funds through additional charges and fees including an increase in the price of the car.

How long will my financial term be?

The length of your vehicle financing contract will depend on what you’ve agreed with the finance company. Car finance, like HP or PCP is usually between 2 and five years. If you’re getting a loan for a car, it may be similar to a PCP loan. It’s important to remember that the longer you have to pay regular installments, the more total interest you’ll be paying.