Many people in the UK still believe car finance is one straight forward agreement. However, in the UK, there are typically 3 main car finance agreements which are most popular amongst drivers. There are a number of reasons why certain agreements may suit different individuals better than others such as ownership of the car, flexibility to change cars or ability to be accepted. If you’ve been refused car finance in the past, it may have been the type of car finance agreement or loan you were trying to be accepted for. You should do your research before you start applying and also shop around for the best deal.
If you are applying for bad credit car finance and are worried about getting accepted, its best to shop around for bad credit car finance specialist who can help. If you are shopping around, you should stick to soft search application only as making multiple applications in a short space of time can negatively affect your credit score. Let’s take a look at the most popular car finance deals in the UK…
- Personal loan
A personal loan is a great way to fund your next car. Personal loans are usually offered by banks or building societies. A personal loan can be used for pretty much anything and you can spread the cost over one to seven years. It is usually the cheapest way to fund a car because you can spread the cost over a long period of time. Usually, monthly repayments may be higher but overall, you will tend to pay less overall than other finance options. Because you get the full amount deposited into your bank account, you can spend the money on the car you want and become the automatic owner of the car straight away, meaning you can choose to sell your car at any point.
- Hire purchase
Hire purchase is a finance agreement which is probably the most straightforward. You will usually pay a deposit and then make fixed monthly payments till the end of your agreement. A hire purchase car finance deal is secure against the car, this means you won’t become the owner until the final payment has been made. If you miss payments each month, then the finance company have the right to take the car away. At the end of your contract you can choose to keep the car and make no more payments, or you can give the car back to the dealer and walk away. Hire purchase agreements usually have low deposits and interest rates, flexible repayment terms an there is no lump sum to pay at the end of the agreement. You can determine the length of your car finance contract between 12-60 months. You can get a hire purchase deal from a dealership or there are many online car finance brokers who can match you up with the most suitable lender for you. You can also take out a hire purchase deal on both new and used cars.
- Personal Contract Purchase
A personal contract purchase or PCP deal is a little more complex than the other agreements mentioned. Like hire purchase, you will apply for a loan of a certain amount, then pay back the loan each month with added interest. However, at the end of the agreement, you have 3 options. You can return the car and walk away, pay the resale value and keep the car, or use the resale value towards buying a new car. Within some PCP deals, there are usually annual mileage restrictions, so it’s best to check this before you sign any agreement If you go over the annual mileage agreed, it could mean you can be faced with additional charges at the end of your agreement. You could also face additional charges for any damages to the car. PCP deals tend to have lower monthly payments, but you can end up paying more overall. They are particularly good for people who like to change their car regularly.