If you’re looking to get a car on finance, you may be wondering if it’s the right option for you. When it comes to how to fund your next car purchase, cash can be most cost-effective way to buy a car. There’s no interest to pay and you usually have more haggling power when buying with cash. You aren’t limited to where you get your car from either and can buy from both dealers and private sellers, and you’ll also be the automatic owner of the car. This means you can sell it when you want and make any modifications you like. However, even the purchase price of used cars now cost thousands of pounds and you don’t want to have to buy a 10-year-old car just to get a low price. This is one of the reasons why more drivers than ever are choosing to finance their next vehicle. So, if buying a car with cash is not an option for you, let’s take a look at why car finance can be the best way to fund your next purchase.
How does car finance work?
There are 3 types of car finance which tend to be the most popular, they are a personal loan option, a hire purchase deal, and a Personal Contract Purchase agreement. Each is worth looking at in more detail but in general they all have the same underlying structure. You borrow an agreed amount from a lender either in cash or to the value of your chosen car. You then agree to pay back the loan in monthly instalments with interest till the end of the term. Usually car finance deals are taken over 3-5 years, but you can choose a loan term that is right for you.
Can you finance any car?
When car finance first become popular it was usually only really offered on brand new cars, but you can now finance a whole range of different cars. From used cars to electric car finance, there can be an agreement to suit you. Its worth exploring different car finance agreements and comparing monthly payments on different types of cars. PCP finance defers a lot of the value of the cars cost till the end of the deal so they can benefit from lower monthly payments on some of the newest cars. However, if you want to own the car at the end then you would need to pay the balloon payment which can be thousands of pounds to pay. Hire purchase can be the most beneficial is you want a straightforward car finance deal and a small option to purchase fee at the end.
Where can you get car finance?
One of the easiest ways to sort your car finance is to head to the dealer and finance a car within your budget. Car dealerships have lenders who they work with but sometimes your options can be limited, especially if you have bad credit. You could also consider getting your car finance through a broker who works on your behalf to get the best deal. Brokers have access to a wide range of trusted UK lenders and help you select the best deal for your circumstances. You can then take your car finance deal to any dealer just like a cash buyer and get a car within your budget.
How much does car finance cost?
How much your car finance will cost you will depend on a few factors Your monthly budget and also your credit score can determine your car finance rates. You could use a free car finance payment calculator to compare monthly budgets and loan terms to see how much your car finance deal could cost. You will also need to pay interest on top of your deal and having a low credit score can make your car finance more expensive than it needs to be. It could be worth increasing your score in the run up to your finance application to help improve your chances of getting a better car finance deal.
Is car finance guaranteed?
Unfortunately, car finance is never guaranteed, and you will need to meet the lenders criteria before you can get approved. Lenders set their own criteria to make sure they are abiding by the rules of responsible lending. They will check that you can afford to pay back your loan on time and in full by requesting bank statements to prove your income and also by performing a credit check on you. A credit check helps lenders to see how you’ve handled credit or finance in the past and sets the level of risk. If you’ve missed payments in the past or made late repayments, then lenders may be worried that you can’t be trusted to not default on any money they borrow you.