Car Finance

Car finance is a type of loan or agreement allowing you to buy or lease a car without paying the full amount immediately. This could be used car finance or new car finance. With these, you can pay for the car in monthly instalments. Making it much easier to buy a car. 

Once you’ve reviewed the available car financing deals, you’ll choose an option and sign the agreement. You’ll have to put a deposit down and pay monthly instalments until the end of the term. There may be deposit-free options, but these will usually make your monthly instalments and interest rates higher. 

At the end of the contract, you either keep the car because it’s paid off, pay a lump sum to own it outright, or start a new leasing contract altogether. This depends on the financing deal you’ve chosen. 

There are multiple benefits to taking out car finance which is why it could be important for you to consider. 

Firstly, car finance makes owning a car affordable. Since you’re paying monthly instalments, cash flow management is much easier. It could also be easier to maintain a newer car rather than get by with an older model that might cost a lot in repairs. Financing a car can also allow you to build your credit record, proving your reliability to banks and lenders over time. There are various payment options so you can choose a plan around your needs. Affordability and flexibility are key components of car finance deals. 

Car financing terms and conditions can vary from person to person. Your repayment period and monthly payments will be determined by the policies of the lender, your credit score and the type of finance deal you’ve chosen. The total amount you’ve borrowed, the length of the repayment term, the interest rate applied and the deposit you initially paid will also have a bearing on repayments.

Longer payment periods usually mean lower monthly payments, with more interest paid over time. On the other hand, shorter repayment periods mean higher monthly payments, but lower interest paid over time. It’s advisable to shop around for various quotes as these can differ. You can also use an online finance calculator to give you a clearer idea about costs. 

Your credit score is an important factor for any loan agreement. This helps lenders determine whether you can make your repayments without problems.  

A car finance company also looks at your credit score and history when deciding on the terms and conditions of your loan agreement. If you have a bad credit score, you may not qualify for car financing at all. The better your credit score, the better your financing deals will likely be. For young drivers who have not built a credit history, there are alternative options. Young driver car finance or student car finance are designed especially for their needs.  

If you’re applying for car finance, you’ll typically have four options. Hire purchase (HP), personal contract purchase (PCP), personal loans, or leasing. These will all come with their own loan payment terms, so you can choose the best option for your circumstances.  

Some car financing deals come with an annual mileage limit. This is typical when you’re leasing a car or if you’ve chosen a PCP contract. That’s because the value of the car at the end of your term is affected by the mileage on the odometer.  

HP agreements and personal loans don’t usually have mileage restrictions as you’re buying the car outright from the start. It’s important to note that exceeding your annual mileage limits could result in paying costly penalties. 

Most car financing deals require some kind of an upfront payment. The amount can vary depending on the type of deal you have. For example, an HP agreement requires a deposit followed by fixed monthly payments. A PCP may require a smaller upfront payment, followed by monthly payments until the end of the term and then an optional larger final payment. If you’re leasing a car the upfront payment is often referred to as the “initial rental” rather than a deposit. It’s always a good idea to get quotes from various companies. In some cases, you might be offered a no-deposit option. 

These can vary significantly depending on the policies of the lender, the type of agreement you have, your credit score and the vehicle you’re financing. 

Car finance deals are typically offered with an APR (Annual Percentage Rate). This includes the interest rate and other charges. With a good credit score, you could get a lower interest rate. Some finance companies may offer a 0% interest rate deal for a certain amount of time, lowering your overall costs significantly. You may be offered a fixed interest rate throughout the term, or you could customise your agreement which could result in higher interest rates. If you are looking for cheap car finance, it’s important to compare various options and play around with the figures to find what suits you best. A finance calculator is a handy tool to help with this task. 

To find the best car finance deals it’s important to know what your options are. Typically, you can choose Hire Purchase (HP), Personal Contract Purchase (PCP), Personal Contract Hire (PCH), leasing, or the traditional personal loan. There’s usually a bit of room to negotiate, so it’s advisable to compare various deals so you’re armed with relevant information. Comparing quotes could also increase your chances of finding the cheapest car finance available to you. 

When weighing up your options, you can look for deals that offer 0% interest for a set amount of time. This could make your initial payments easier to manage. Other offers may allow you to customise your deal to suit your circumstances. Customisation could mean you choose your loan term or adjust your deposit amount but may incur a higher interest rate. Also look out for special deals or bundled options with perks like servicing, insurance or extended warranties. 

The benefits of car financing include affordability and flexibility.

Car financing allows you to have access to newer cars that otherwise would be too expensive to buy.

Various financing options allow you more solutions to car ownership. Buying a car outright requires a large upfront payment. But financing means lower initial costs and budget-friendly monthly payments.

With a good credit score and all your documentation on hand, car finance can be simple to arrange.

If you make your monthly payments on time, you’ll also improve your credit score over time.  

Entering into a contract always has its risks. Car financing is no different. For example, lenders typically do a hard credit check to see if you’re eligible for finance. Multiple hard checks in a short time can negatively affect your credit score. This could last up to six months.  

Car financing deals typically span 2-4 years. If your financial situation changes during this time, you might not be able to make your payments. Ending a loan agreement prematurely could cost a lot because you might end up owing more than the car is worth. Depreciation risks are a concern with long-term finance deals. Particularly with new cars, as their value falls most in the first few years.  

Depending on the type of deal you opt for, you might have restrictions on annual mileage. Until you own a vehicle outright, you may also be limited in what you can use the vehicle for.  

Some financing deals may require you to service the car according to a specific schedule. Maintenance costs can add up. It’s important to consider the overall cost of financing a car, and not just the monthly payments.