If you’re due a car upgrade or looking to get your first car on finance, you may be wondering which car finance agreement to choose. Many drivers in the UK aren’t even aware of the options available to them when it comes to getting a car loan. In the UK, there are three types of car finance agreement which tend to be the most popular amongst drivers. They are a personal loan option, hire purchase car finance and a Personal Contract Purchase (PCP) deal. Each finance agreement has the same underlying principle where you finance a car in monthly repayments over a number of years and pay added interest on top. However, they each have different criteria and can be more suited to come people over others. Let’s take a look at each car finance agreement in more details and help decide which is right for you.
Types of car finance:
Personal Loan
Many people believe that a personal loan can be one of the cheapest and simplest ways of borrowing money for a car. You can spread the cost over 1-7 years and buy the car outright so you will be the legal owner from the start. You can obtain a personal loan from a car finance broker, bank or building society and it’s recommended that you compare different personal loans to get the cheapest rate. The best rates can sometimes be reserved for those with good credit scores as they are seen as less of a risk to lend to. If you’re looking for a bad credit car loan, it may not be the best option for you but there are other agreements which could be.
PCP car finance
Personal contract purchase is a form of car finance that allows you to get a car with flexible ownership options. Within a PCP agreement, you pay back the cost of part of your chosen vehicle so monthly payments tend to be lower than other options. You don’t own the car at the end of agreement unless you pay the large balloon payment to take ownership. Alternatively, you can choose to hand the car back to the dealer or use the value of the car to get a new car on another PCP agreement. It’s worth noting that you will be required to keep the car in good condition and agree a mileage limit at the start of the agreement. Exceeding the mileage limit or damaging the vehicle may result in extra charges at the end of the term. PCP deals tend to be offered by car dealers but can be found online too.
Hire purchase
Hire purchase car finance is a great way spread the cost of your chosen car into affordable monthly payments. HP is really straightforward as you would apply for finance on the car you want and then pay back the total value of the car with added interest. Hire purchase can be suited to those with poor credit scores as it is a form of secured finance, and you can submit a joint finance application too. A joint finance deal can be a good option for people who are struggling to get approved on their own. At the end of a hire purchase deal, you have a small option to purchase fee and then you will own the car. There are no mileage or damage charges associated with hire purchase either.
Which car finance agreement is right for you?
Depending on what you want from your car fin ace deal, you may be suited to one more than other or even two deals that could fit into your budget. If you have a good credit score, a personal loan option may be the most affordable way to borrow money for a car. If you want low monthly payments and aren’t bothered about having ownership of the vehicle, a PCP deal could eb the one for you. Hire purchase can be good for those who are struggling to get approved for finance as lenders can use the car as collateral if you fail to meet your repayments. Each car finance agreement will also include interest too so it’s worth exploring all options and comparing interest rates before you commit to getting a car.
