Guide to buying a car on finance
We'd all love to head out today and drive home a new car, wouldn't we? To be spontaneous and impulsive, if just for a day, and treat ourselves to a stylish set of wheels.
"But I don't have that kind of money just lying around," you might tell yourself, in a fruitless attempt to reduce your motor-urges.
If you are telling yourself that, trust us - you're not alone. Very few people have the ability to just head out and buy a car on a whim but even if you do, it doesn't mean that buying a car outright is always the right way to pay.
The truth is there are many ways you can pay for a new or used car without having to give away all of your savings in one go, and monthly payment plans are preferred over lump sum payments in a high percentage of instances. In this guide we'll break them down for you with the help of videos and payment calculators, but first things first:
Why are finance deals from car dealerships more beneficial than borrowing money from other sources, such as banks or payday loan companies?
Well, for starters, your monthly payments will be far lower. This is because car dealerships allow you to defer a large part of your payment until the end of the arranged plan - giving you plenty of time to save and prepare for it. This is simply not a luxury that banks or loan companies offer you; quite the opposite! They'll often be looking to recoup the personal loan as quick as possible.
Car dealerships also offer fixed interest rates, so there are no nasty surprises awaiting you when next month's payment comes out. Of course, we've all heard the horror stories; people enduring interest equating to an annual percentage rate of more than (an absolutely staggering) 5,000%, applied by some dubious loan companies. Bank loans aren't quite as extortionate, but also don't offer the same flexibility as dealerships in many cases. Many dealerships have relationships with banks anyway; Carbase, for example, has a close relationship with several of the largest lenders and are in the privileged position of having achieved Lloyd's Bank, Black Horse Approved Dealer Status.
Then there's the fact that the car acts as security when you agree to a finance plan with a dealership. This means that you don't blow your entire credit limit like you would if you borrowed from a bank or loan company, enabling you to still access other forms of credit.
Overall, it's faster, easier and more beneficial. You don't have to wait around for the bank to send paperwork out to you or for the bank's money to clear in your account. You can arrive at a dealership and drive home the same day with your plan in place. You can also trade your car in at any point and rearrange your payment plan.
Why finance through a car dealership?
- Lower monthly payments
- Faster and more convenient
- Fixed interest rates
- Flexible and bespoke
- Doesn't blow your credit limit
- Allows you to access other forms of credit
Hire Purchase (HP) - Finance Deals
HP finance is our speciality and because of this, it's by far the most popular way that our customers pay for their new cars.
The customer will usually pay a 10% deposit for the car, and then the remaining payments are spread out across a period of 38-60 months. These plans allow you to set budgets and stick to your monthly payments with greater ease and accuracy. They're fixed interest, and better still they're adjustable - so should any problems arise during the plan, a solution can be found.
In hire purchase finance deals, the car acts as your security for the finance arrangement. This means that you'll still have access to other forms of credit for other areas of your life - be it booking a holiday, updating your home technology or forking out for a dream wedding.
Should you decide you want to pay off the HP agreement - say you've won the lottery and you've got money burning a hole in your wallet - you can settle the remaining payments at any time; rest assured, you won't face any financial penalties for settling up early.
Then, at the end of agreement, the car is yours. You take full ownership of the vehicle.
So what happens if you want to trade in the car during a hire purchase finance deal? Well, you do exactly that; trade it in and a new payment plan can be arranged.
Why opt for a hire purchase deal?
- Payments are spread out
- Adjustable and tailored to you
- Easy to budget
- Trade in the car during the plan
- Doesn't blow your credit limit
- Fixed interest
- Access to other forms or credit
- You can end the deal and pay off the car at any point
Personal Contract Purchase (PCP) - finance deals
A variation of a hire purchase deal is a personal contract. The plans have a lot of similarities, but what you're actually paying for is different. Don't get us wrong - the customer still pays for the car - but instead of paying for the car outright you're actually paying the cost difference between the car's sale price and its resale price back to the dealer.
That amount is decided based on a forecast of your annual mileage. This does mean that the condition of your car will affect the cost, and that you may pay more than with a standard hire purchase plan in the long run, but you'll also benefit from lower monthly payments which are spread over a shorter term of around 12-48 months.
At the end of the plan, what you do with the car is entirely up to you. You can either:
- Return the car to the dealer and pay nothing *
- Trade the car in and get a brand new (used) car and repeat the process *
- Pay the resale price and the car becomes yours *
Why opt for a personal contract?
- Even lower monthly payments
- Even lower deposits
- Shorter payment terms
- Choice of what to do at the end of plan
Tailored finance deals
Everyone's situation is different, and any car dealer worth their salt will understand this. Finance plans should be bespoke for each individual customer; after all, there's no point in setting up an unrealistic deal. All that does is create stress for both parties.
Let's say you have a low credit score and think you'd be unable to get a car on finance because of it. Believe it or not, a low credit score isn't the be all and end all. At Carbase, for example, our Business Managers are experts in securing lines of credit. Whether you're looking for a prime finance or sub-prime finance deal, our managers know where and how to get the best used car finance deal for you.
Other 'tailorable' options include Buy Now Pay Later - which does exactly what it says on the tin. Customers can drive away in their new (used) car today but pay nothing for two months. This gives you the car you need quickly, whilst also allowing you a bit of breathing room before you have to part with any cash. The preparation time can make a whole lot of difference.
Why should you speak to a dealer about tailored finance deals?
- New lines of credit available
- Buy Now Pay Later deals
- No deposit finance deals
- Experienced business managers
Three steps to buying a car on finance
1. Settle on a budget
How much do you have for a deposit, and how much can you realistically afford each month? Answer these questions and ensure you're comfortable with the answers. Don't overstretch yourself - allow some room to breathe. As a general rule of thumb, we advise that your monthly car payment should never be more than 20% of your monthly salary after tax.
Use our Car Finance Calculator to test your payment options and apply for finance.
2. Find the car
When you've settled on a budget and have a good idea of what you're going to be paying each month, you can begin to find a model which suits your requirements. Enter your criteria into the search engine and you'll be taken to a list of vehicles which suit your needs.
3. Speak to a car dealership
When you've arranged your finances and found the perfect car, what are you waiting for? Get in touch with Carbase now and you could potentially be driving your new car home in just a few hours' time. Exciting stuff...
Learn more and try our finance calculator or get a free quote
Check your eligibility for motor finance here
*Terms and conditions apply and not all finance options may be available to all customers in every circumstance