Some people in Britain are in the fortunate position of being able to pay for any cars they want to buy in cash, but for most people cash-only purchases aren’t really an option, especially if they cannot save large sums of money on a regular basis.
But there is a light at the end of the proverbial tunnel, and the solution to such dilemmas comes in the form of car financing! If you have never bought a car on finance before, here is what you need to know.
Are there different types of finance available?
Car dealers can offer a number of different finance packages to suit your requirements. The most common options are as follows:
- Hire Purchase (HP) – with hire purchase finance agreements, you pay a deposit upfront (usually 10% or so) and pay an agreed number of fixed monthly instalments over a period of time like 3 or 5 years. Once this period has been reached, and all of your instalments (as well as any final purchase fees) have been paid, you then own the car in its entirety;
- Personal Contract Purchase (PCP) – this type of finance is similar to hire purchase in that you pay a deposit and a number of fixed instalments. The only difference is, at the end of the term you can either pay a ‘balloon’ payment to own the car, you can return the car to the dealer with nothing further to pay, or you can trade it in for another car. It is worth noting that the balloon payment can be refinanced as a hire purchase agreement;
- Personal Contract Hire (PCH) – this is exactly the same as the previous two forms of car finance, except that at the end of the term you have to hand the car back to the dealer as you’ve no option to buy it or trade it in.
Which option is right for me?
If you want to own the car outright, you should take out a hire purchase or personal contract purchase finance agreement, but if you aren’t interested in keeping the car or trading it in for another, personal contract hire is the way to go.
Dealers will usually run through the options with you in greater detail before you commit to anything, so, for example, if you want to get finance at Carbase, they will tell you which options are available for the car that you want to buy.
What are the requirements for buying a car on finance?
In order to apply for car finance there are certain conditions that you need to satisfy, these are usually as follows:
- You must be 18 years of age or older;
- You must be in employment or be able to prove you receive a regular income;
- You must have a good credit record.
Car finance is generally easier to obtain than a personal loan from a bank because the money being borrowed is secured against the car itself; this means if you don’t pay your monthly instalments as agreed, the finance company has the right to repossess the car from you.