Buying a car is one of life’s significant moments. A rite of passage for most, driving a vehicle away from the dealership is all part of the thrill. It’s also one of the most significant purchases you’ll ever make. Doing it all on your own though isn’t as simple as you might think. With the average used car in the UK costing £13,705, making a cash payment is unlikely these days.
Fortunately, shouldering the financial burden of a car is no longer all on you. In the last decade, purchasing a vehicle through finance has become increasingly popular. With so many different types of vehicle finance widely available to take advantage of, it really is a no brainer.
What’s more, you can often get approved in minutes and on some occasions head straight on down to the dealership. So let’s find out which vehicle financing option is the best for you:
Car finance in a nutshell
Before you get down to the nitty-gritty, understanding how vehicle finance works is crucial. Essentially, when you use finance to pay for a vehicle, your payment is set and spread over a set period of time. The full cost of the car is broken down into manageable monthly repayments with interest.
When it comes to car finance, the most common types are personal contract purchase (PCP), hire purchase (HP), contract hire, a personal loan or lease purchase. Your loan amount is based on several factors:
- How much you want to borrow
- How long you intend to keep your vehicle
- What type of agreement you have
Finding the finance option that suits you best is all down to how each loan differs.
Personal Contract Purchase (PCP)
PCP is arguably the most popular type of vehicle finance. First, you put down a lump deposit on your chosen car, and then the rest is paid off in fixed, monthly instalments. Until your loan is paid off and the vehicle is yours, you cannot sell or privately or return the car.
For those wanting to speed up the repayment process, you can opt to pay a lump sum in the final months of your contract.
Perfect for those that regularly like to change their vehicle hassle-free, PCP has its perks. But don’t become complacent. You will need to keep to your agreed terms throughout, stick to mileage and make sure the car is in good condition. In essence, PCP is pretty much the same as hiring a vehicle.
Hire Purchase (HP)
Taking the pressure off of you, and focusing more on the vehicle itself, a hire purchase loan is secured against your chosen car. Like other financing deals, HP allows you to place down a lump sum deposit and then make your monthly, fixed repayments.
Selling the car is not an option unless you, a) get the lenders permission or b) have made your final repayment, and the vehicle is already yours. With some extra benefits like servicing included, a HP loan is a good way of keeping on top of your bank balance.
Perfect for those who love the driving experience as much as getting behind a fresh wheel regularly, contract hire is excellent for those who don’t want to own the vehicle. Limitations are based on:
- Make and model
- Agreed mileage limits
- Length of contract
Other than that, the motoring world is your oyster, without the responsibility of ownership. So if you are happy to pay up to three months rental upfront and get your servicing thrown in for free, you have nothing left to worry about other than your monthly payments.
Unlike a PCP or HP finance package, a personal loan is otherwise known as an unsecured loan, so isn’t secured against the vehicle itself. Although you have a set loan and will make monthly repayments, the car is all yours once the dealer has received the full amount. What’s more, you can sell the vehicle while making your repayments should you wish.
Payments are fixed, meaning you can budget easier, and you can buy your vehicle from any dealership or private seller.
Afraid to take the plunge?
With terms like soft and hard credit searches thrown around, it’s often difficult to keep your head above water. From those needing access to car finance for bad credit to those not knowing which loan to go for, many vehicle finance options are available.
First off, what do you want from your new car? Is it all about the driving experience, or do you need it to commute or family adventures? Then, you need to think about how long you want the car for? Is your end goal to own it outright or build up your credit score through repayments?
Applying for vehicle finance is one of the most popular ways of purchasing a car for a reason. It’s simple, affordable and has many advantages. What are you waiting for?