Car Finance

  • Purchasing a car with car finance has become increasingly popular in the UK over the last decade. We've put together handy answers to the most frequently asked question about car finance below to help you understand more about these products.

What is car finance?

Not everyone is in a position to buy a car outright but many people can afford to make regular monthly payments towards a car. Car Finance is available for those who need to use a car immediately, but want to spread the cost.

Finance plans involve an upfront deposit, followed by monthly instalments over an agreed period. The terms of these agreements may vary depending on your individual needs, the agreement you sign and your financial circumstances.

It’s important to note that finance is secured against the car. This means that you do not own the car until the finance agreement ends.

Who offers car finance?

Car dealers and manufacturers offer car finance options, but you can also sort car finance directly with many lenders, so it is worth shopping around for good deals yourself before you make a purchase.

What kind of car finance should I choose?

There is a wide range of Car Finance options on the market. The right one for you will depend on your personal financial circumstances. Below we give you a more detailed look at some of the most popular options.

Can I get a personal loan to buy a car?

Yes, a personal loan will mean that you own the car you’re buying in its entirety from the outset. You will pay the full value of the car and ownership is transferred to you. The responsibility is then all on you to pay back the loan at staggered intervals over an agreed time period and interest rate.

What kind of personal loans are available for car purchases?

Here are some of the different types of personal loan available to fund your car purchase:

  • A personal unsecured loan: Many providers will offer a personal loan. There is no need for security and your terms of interest and repayment will be determined by the provider.
  • A personal secured loan: A personal secured loan means using a significant asset, such as your property, as security against the loan you’re taking out. This asset will be at risk should you default on your repayments.
  • A personal guarantor loan: This promises that a friend or relative will take over the payments on the occasion that you default. It is an option for those with a low credit rating.

What is a Hire Purchase payment plan?

Hire purchase (HP) spreads the cost of the car over monthly instalments. The finance company you choose to borrow from will purchase the car and you will hire the car from them.

Under a hire purchase agreement, you will not own the car until the final repayment is made. Essentially, you hire the car for the length of time it takes to pay it off.

Like many other Car Finance plans, the details are flexible to a certain degree, so it’s worth shopping around for low interest rates and finding a time period for repayments that suits your circumstances.

What is a Conditional Sale?

A Conditional Sale in car finance terms is very similar to a Hire Purchase, except the customer commits to becoming the legal owner of the vehicle after all payments have been made.

What is a Personal Contract Plan?

A Personal Contract Plan (PCP) is a similar setup to a Hire Purchase payment plan but with a few differences. Under a Personal Contract Plan the borrower is only repaying part of the total sum due.

At the end of the finance agreement you will have options with a Personal Contract Plan. There is an option to make a ‘balloon payment’ and repay the remaining amount of finance or to hand the vehicle back.

Be aware that you might face some restrictions on a Personal Contract Plan which will differ based on your lender so be sure to check the details of your agreement here. As with all Car Finance agreements, it’s worth shopping around for a deal that suits your particular circumstances.

What is Personal Leasing?

Personal Leasing is a car finance plan usually applicable to brand new cars, meaning it can work for people who like to regularly update their car. Payment plans generally run for between two and four years and will see you pay a fixed monthly fee for the car for that pre-agreed period.

This fee will often include service and maintenance charges and you will usually have to stick to a pre-agreed mileage limit.

At the end of the agreed term for the Personal Leasing plan the car is returned to the leasing company.

What is APR?

With most car financing options, you’ll come across the term APR, or annual percentage rate. It’s important to understand what this is when comparing car finance and personal loans.

APR represents, for the purposes of comparison, the full cost of borrowing in the first year – including any fees (such as admin or broker fees) along with the interest charged.

How can I decide between the different forms of car finance?

Each different form of Car Finance comes with different benefits and downsides. Your decision between the different options will be based on your personal circumstances including your credit rating, the amount of money you have to spend, and whether or not you want to own the car immediately or even at all.

Manufacturers and dealers may not be offering you the best deal available, so make sure you explore all the options beforehand to find out which is the right deal is for you.

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