Car Finance FAQs
What is car finance?
If you can't afford a car outright, but can spread the cost over a period of months from your regular income, then a car financing scheme could be an option. These come in various forms and set ups with different associated costs, depending on each scheme.
Broadly they follow the same structure: you pay a certain amount as deposit, and the remaining value of the car on an agreed upon interest rate, is spread over a period of months. The finance is secured against the car, which means you do not own the car until the finance agreement ends.
Where can I get car finance from?
Car dealers and manufacturers offer car finance options, but you can shop around for great deals yourself in advance of your car purchase.
Can I get a personal loan for my car?
A personal loan will allow you to buy your car with money loaned to you. This means that unlike car finance, you will own the car from the outset. The loan amount and interest rate will be based on your credit score.
What types of personal loans are available to buy a car?
The terms of your loan will depend on your circumstances, your credit rating, and the type of plan you choose. Here are a few types of personal loan available for your car purchase:
- Personal unsecured loan: This type of loan is a standard personal loan, with no security required and are available from many providers, not just banks.
- Personal secured loan: This approach will mean stumping up a significant asset, such as your home, as security against the loan.
- Personal guarantor loan: This promises that a friend or relative will take over the payments if you default. An option if you have a low credit rating.
What types of car finance are available to buy a car?
Here are the main payment plans you are likely to find on the market:
- Hire Purchase: The straightforward finance option. The finance company purchases the car, and you hire the car from them. Your monthly repayments repay the total amount owed and you have the option to own the car at the end
- Conditional Sale: Very similar to hire purchase, except you are contractually obliged to become the owner of the car at the end of the payment scheme.
- Personal Contract Plan: Again, set up like hire purchase but you are only repaying part of the total amount due. At the end of the finance agreement the remaining amount can be paid in a lump sum (balloon payment). There are options around handing the vehicle back at the end, but also sometimes restrictions around the mileage and condition of the car.
- Personal Leasing: A fixed term car rental scheme usually applicable to brand new cars and typically runs for 2-4 years, at which point the car returns to the leasing company. This option can work for those who like to regularly update their car and enjoy the associated benefits of having a new vehicle.
How do I choose which form of car finance to use?
The scheme you choose will depend on your personal circumstances: your credit rating, the amount of money you have to spend, and whether or not you want to own the car immediately or at all.
Manufacturers and dealers are infamous for not 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.