Different Types Of Car Finance Options
Car finance can be a huge help when it comes to buying a new car. For those of us that do not have a lump sum to pay for a car outright, paying in more manageable monthly instalments is advantageous. But t There are a few different types of finance that you could choose from, so how do you know which is the best option for you? Whether you’d prefer an option that allows you to buy your car after a certain term, or you like updating your car more regularly – there is an option for you. If your credit history is not the best, there are even bad credit car loans available!
Types of car finance
Choosing finance to help you buy a car comes with so many benefits, but to help you decide which option is best for you, it helps to know a little bit more about the conditions that come with each option. Here is a round-up of a few of the most popular car finance options and what they’d mean for you.
- Hire Purchase: This type of car finance requires you to put a deposit down on the car, most lenders ask for around 10% of the price of the car but this may vary, and then you will be able to drive your car away. From then on, you will make monthly payments towards the cost of the vehicle, and only when you have made the final payment will you own the car.
- PCP: Personal contract purchase loans, like hire purchase, require you to put a deposit down towards your car, and you will borrow the remaining balance. You will then make monthly repayments of a fixed price throughout the contract, and once you are at the end of this contract, you will be able to pay the remainder off and own the car, swap it for a newer model and take out a new contract, or just hand the vehicle back.
- Leasing: With this type of finance, you don’t actually own the car, you simply pay for it monthly over a set period. When this term comes to an end, you can choose another vehicle, or give it back.
- Car finance for bad credit: If you have a bad credit history that has had an impact on your credit score, some lenders will approve you for car finance. All you must do is find a lender that offers this option., and they will base their approval on whether you can afford to meet the repayments.
What are the benefits?
So, why should you choose to buy a car on finance? Car finance allows you access to a car without having to pay for it outright – many of us don’t have a lump sum of cash to spend on a car, so we can take advantage of smaller monthly payments. Some lenders offer zero deposit options if that is a dealbreaker for you.You can even choose an option that doesn’t require a deposit if that is a deal breaker for you. Your monthly repayments will be a set amount each month, which makes it easier for you to budget for it. If you have a history of bad credit, or you’re looking to build up your credit score, car finance can help with this. Ensuring that you’re able to make the repayments each month means you will be able to build up your credit score to improve your position for any future financial help you may need.
Who can apply for car finance?
Car finance can be useful for any driver, especially those that don’t have the savings to buy a new car. Young drivers may find car finance more manageable, as they may not have a lump sum to buy a car. Those that have bad credit may also find it easier to manage car finance if they can prove to their lender that they can afford monthly repayments – it is more likely that they will be approved for car finance than they would be a personal loan to help them with their purchase. Generally, car finance gives you the option to make smaller, more manageable payments towards a car that you otherwise may not be able to afford.
Factors to consider before applying
There are a few factors that you’ll need to think about when applying for car finance so that you can make sure you’re getting the best deal without putting yourself in further financial difficulty, such as:
- How much can you afford? You’re going to need to look closely at your budget and decide how much you can afford to spend on finance repayments. Be sensible and make sure you choose a car that does not take up all your monthly income – you need to be able to live comfortably and ensure you’re not going to end up in financial difficulty.
- Do you want to own the car? As we’ve seen above, there are finance options that allow you to own the car once you’ve finished repaying what you owe over a certain term. If you want to own your car, you’ll need to make sure the finance option you choose allows for this.
- Do you like the freedom of changing your car? If so, you’ll need to make sure that you choose a finance option that allows you to swap your car for another once your repayment period is up.
- Could you benefit from a deposit? Some types of finance don’t require you to put down a deposit, this can also depend on the lender you choose. However, choosing to save for a down payment means that you may be able to reduce the cost of your monthly payments, and make them more affordable.