Car finance is the UKs favourite way to buy a new car, with more than 90% of Brits choosing finance over upfront payment. But with so many different finance deals on the table, it’s hard to know which one is best for you.
Personal loans, PCP, HP and leasing are all terms you’ll hear batted about the dealership. They take away the necessity of saving up a small fortune and allow you to manage your budget with low monthly repayments.
So if you’re wondering about the best way to finance your next vehicle, you’ve come to the right place.
- Draw up a budget
Before you make any decisions about car finance, you need to take a look at your budget vs income. By working out how much you are already spending each month, against predicted costs for insurance, tax, fuel, servicing and any potential repairs, you will have a better idea of how much you can reasonably borrow and afford to pay back.
Having a budget in mind will ensure you choose the car finance deal that works best for you and allow you to stay on top of your monthly spending to boot.
- Compare and save
Did you know that car finance isn’t just reserved for dealerships? There are numerous car finance lenders online that can often offer you a more affordable deal giving you more flexibility and choice all round.
If you’ve recently been rejected for a loan or have struggled to be accepted for finance in the past, don’t worry. There are several reputable specialist car finance companies out there like Carvine who work tirelessly with a network of specialist lenders to help you get behind the wheel, no matter what your circumstances.
Whether you have a poor or bad credit score, are self-employed, have a bankruptcy, CCJ, IVA or default on your credit report, “bad credit” car finance is available.
- Personal Loan
The one where you are most in control of your finances.
While personal loans can turn out more expensive than other finance deals, they are worth a look. First off, they aren’t secured against the car, which automatically makes you more of a risk with the lender as you are in control of your purchase. But, it also means the vehicle cannot be repossessed.
From the moment you buy the car with a personal loan, the vehicle is yours from the get-go. This frees you up to sell it on as you wish, without involving the lender or dealer.
Arguably, a personal loan is the most flexible type of car finance out there, as there are no limitations from the dealer or lender to consider, such as mileage limits and vehicle condition.
- Personal Contract Purchase (PCP)
The flexible one.
Personal Contract Purchase (PCP) differs from a personal loan. It allows you to effectively tailor your loan according to the amount of cash you’re able to put towards your initial deposit (with the minimum starting at 10%), how long you want your contract to last for and how much mileage you intend to use according to your lifestyle.
While choosing PCP won’t make the car yours outright, there are several options on offer at the end of your contract:
- One-off pre-agreed final payment (known as a “balloon payment”)
- Trade-it in and use the equity towards another car
- Hand back the car with nothing else left to pay
Make sure you stick to your agreed mileage and keep the vehicle in good condition to avoid penalties later on.
- Hire Purchase (HP)
For those that like to keep costs down.
Unlike PCP, buying your next vehicle with a hire purchase loan makes the car yours automatically once you’ve made your final payment. There’s no large final lump sum payment to worry about, but your monthly instalments will be higher than PCP finance. The plus side is there is less interest charged!
Typically, you pay a 10% minimum deposit with an HP deal. But, if you have the available cash and want to pay a larger sum at the beginning, this will make your monthly payments much lower. In some cases, you might be able to get HP with zero deposit.
- Personal Contract Hire (PCH)
The one with lower monthly payments! The catch? You don’t get to keep the car.
Think of Personal Contract Hire as a long-term car rental agreement. You get all the perks of driving around in a new motor, but when your contract comes to an end, you hand the car back, no strings attached.
The biggest catch with PCH is that you have to stick to strict mileage limits. If you exceed your agreed mileage, you’ll be charged per mile. But don’t let that put you off. The fact that you have to hand the car back within an agreed time, the dealer and lender will have a good idea of how much the vehicle will be worth when you hand it back.
- Manufacturer New Car Finance
Perfect if you’re looking for a bargain.
If you simply want a new car but without any desire for a particular model or make, then it’s worth checking out what car finance bargains are around. This is where you’ll finance lower interest on new cars, no-deposit deals, deposit contribution discounts and potentially interest-free finance deals.
Usually, manufacturer new car finance deals are only available on vehicles that dealerships are struggling to sell. They will either be the end of the line motors, or they just aren’t very popular.
While this may not be ideal if you already have visions of what you want your new motor to look like, you can scoop up a real bargain if you’re not too fussed about what car you drive away in.
Financing your next vehicle doesn’t have to be a challenge. Whether you want a flexible loan or one that makes changing your car more regularly more straightforward, there is a car finance deal for everyone’s circumstances. Which type of car finance do you prefer?
