How to get the best car finance deal

The UK car finance industry is bigger than ever! With 3 out of 5 cars being bought on some sort of finance or credit, why is everyone choosing to finance? Car finance allows you to spread the cost of owning a car into affordable monthly payments! Meaning you can get the car you really want without breaking the bank! So, how can you get the best car finance deal for you?

Types of car finance

In the UK, there are typically 3 types of car finance agreements that are most popular. They are Personal Contract Purchase, a personal loan option and Hire Purchase. They are all similar in the sense that they involve borrowing a set amount for a car and then pay it back in monthly instalments to a fixed term.

Personal Loan

A personal loan can be used on pretty much anything and are usually provided by finance lenders, banks and building societies. Personal loan agreements usually have lower interest rates and are spread over a longer term, but you can choose an agreement that’s right for you. You will usually receive your agreed lump sum and then pay it off monthly to your agreed term. Because you buy the car outright, you will automatically become the legal owner of the car, so you are free to sell or exchange the car as you wish further down the line.

Hire Purchase (HP)

Within a HP agreement, you usually put down a 10% deposit, however there are no deposit hire purchase options available. HP agreements are usually set up by a car dealer but there are many online car finance providers who can offer you better rates. When you take out a HP agreement, you make fixed monthly payments to your agreed term. Once you have made the final payment, you then become the automatic legal owner of the car.

Personal Contract Purchase (PCP)
Similar to a HP agreement, Personal Contract Purchase allows you to use the car until the end of the agreement. You can choose a no deposit option, but some PCP deals require a deposit of around 10%. Within a PCP deal, you have three options at the end of your agreement. You can either hand the car back to the dealer or lender, pay the resale value and become the legal owner or use the resale value as part exchange on a new car!

Credit score

Your credit score plays a big part in your ability to get accepted for car finance. Car finance providers will usually require you to pass a credit check to be eligible for car finance. Having a good credit score can make it easier for you to get accepted for car finance and you are usually offered better rates. This is because you are seen as less of a risk to lenders and you have a good history of making all your payments on time and in full. If you are worried about being accepted for bad credit car finance, there are many options available to you! You could also consider a few easy ways to improve your credit score in the run up to a car finance application, to increase your chances of being approved. You can also use an online car finance checker to check your credit without harming your credit score before you apply.

Work out your budget

Car finance is a great way to spread the cost of owning a car. When you apply for car finance you will usually be asked how much you want to borrow and over how many months and this will give you a monthly payment. When you apply for car finance you should set yourself a realistic budget. Owning and running a car can be expensive and you should factor in additional costs such as fuel, car insurance, road tax, MOT/servicing costs, breakdown cover and any unexpected repair costs. It’s important that you make each payment on time and in full so make sure you’re not leaving yourself pinching the pennies each month.

Common car finance myths

Over the years there has been speculation around car finance and many well knows myths which are not true have emerged. Some of the common car finance myths include:

  1. You can only buy a car on finance from a dealer.

This is simply not true. As mentioned, there are many independent and online car finance providers who help you get the car finance deal that’s right for you. You can sort your finance first before even stepping foot in a showroom! You can then choose a car within your budget from any reputable dealership across the UK.

  1. Searching for car finance ruins your credit score

Car finance providers usually check your credit report to see whether you are eligible for car finance. Its recommended that you do your research before you apply for car finance but if you want to get a quote and the  best deal, make sure you are making ‘soft search’ applications which can check your credit without harming your current score.

  1. Personal contract purchase is only available on new cars
    When PCP first came about it was just typically offered on brand new cars only. However, many lenders now offer Personal Contract purchase deals on used cars too.
  2. Having car finance gives you a bad credit rating

Car finance can only hinder your credit score if you are missing or making late repayments. If you make all your repayments on time and in full each month, you can increase your credit score. This is because you are showing car finance lenders you are capable of keeping up to date with your payments and can help your chances of lending in the future.

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