Buying a car on finance your questions answered
Buying a new car will always be a big deal. Whether you're going for a thrifty city car or the latest executive saloon, you're likely to be spending a lot of money on it. Obviously not everyone has thousands of pounds sitting aside, which is why finance is such a popular option among buyers.
While most arrangements are designed to make it easier for you to get hold of your ideal wheels, the whole concept can seem a little complex and daunting. With this in mind, let's answer some of the most frequently asked questions.
Is finance the way to go for me?
The definitive answer to this will depend on a number of factors, as unfortunately there is no one-size-fits-all solution available. If, however, you're in the market for a new - or used - vehicle and are unable to pay for it outright (just like most people in the UK), it's highly likely that you'll be able to benefit from car finance. How much will just depend on finding the deal that best suits your own circumstances.
What types of finance are available?
This is probably the most common question when it comes to finance, as the range can seem a little confusing without the proper explanation. The three most popular variants are hire purchase, personal contract purchase and personal contract hire. The one you choose will simply depend on your own situation and the age and milage of the car your wish to buy, so it certainly helps to do some research.
How does hire purchase work?
Hire purchase is probably the simplest and most often available of the three, which might explain why it's the most popular among motorists. After you've chosen your car, you'll be required to agree a deposit before working with the provider to determine a payment term. With these two elements decided, your monthly payment amounts will be determined. Providing you've kept up with payments throughout, the vehicle will be all yours at the end of the agreement term.
...and personal contract purchase?
Personal contract purchase - or PCP - is often considered the most flexible option. You'll still be required to pay a deposit and keep up with monthly payments, but these are likely to be considerably lower than they would be with a hire purchase agreement. This is because of the optional final payment - a predetermined amount that you'll be required to pay if you want to keep hold of the vehicle at the end of the agreement. If you don't want to pay this, you're free to arrange another deal and move onto something else; perfect for those who like to keep up with the latest models.
How about personal contract hire?
This is similar to PCP in that you start by deciding on a deposit and monthly payments, but without the optional final payment in place, you never actually own the vehicle. Think of it instead as a long-term rental agreement. The main benefit here is that you never lose out to depreciation; once the agreement period comes to an end and you're finished with the car, it's just a case of handing it back to the dealer. This option is often favoured by businesses as it allows them to keep their fleets up-to-date without having to buy new models every couple of years. These deals are sometimes bundled with maintenance packages too.
Are there any other options?
Well, all banks - and some dealers - will be able to offer you a standard personal loan. The first benefit is that you won't be required to pay a deposit. You'll also own the car outright, meaning there won't be any restrictions on how you drive it and what you use it for (within legal reason, of course). The big downside is that many personal loans are secured against other assets such as your house - so if you don't keep up with the payments, there's a chance that you could lose it.
Can I buy a car on finance if I have a bad credit score?
Having a poor credit history may make it more difficult to buy a car on finance, but no longer impossible. Put simply, dealers want to sell cars, so most will go out of their way to find an agreement that suits your circumstances - the deal just won't be as flexible and the payment amounts are likely to be higher.
Many dealers have specialists who are able to find something that suits, so it'll help to choose carefully. Surprisingly, there is actually a benefit to securing a 'bad credit' loan too - providing you stay on top of the payments, it's a good way to improve your rating over time.
Anything else I should know?
In the spirit of competition, dealers and finance providers will always try to offer the best deals for their customers. As such, it pays to look into the little benefits of each. It's sometimes possible, for example, to secure a 'buy now, pay later' finance agreement. This could be ideal if your own vehicle packs up or is written off and you need to get hold of a replacement quickly. As we discussed earlier, not everybody has money ready and waiting to handle an emergency like that.