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What type of car finance options are available?
Buying a new vehicle can be very exciting but can also be expensive, and for most people getting a new or newer vehicle involves having to sort out suitable finance.
There are a number of finance options available if you are looking to purchase a vehicle, and the type that is best suited to you will depend on your needs, preferences, and of course your financial status. This includes:
- Hire purchase
- PCP
- Dealership finance
- Bank loan
- Car specific loan
- Lease or credit purchase
Definition of car finance options
Hire Purchase: This is known to be the most straightforward method of purchase, and is basically where you pay monthly instalments on your car over a set period of time. At the end of that period the car is yours. HP is basically a loan that is secured against the car, in the same way that a mortgage is secured against a home.
PCP: PCP or Personal Contract Purchase also entails paying monthly instalments. However, the monthly instalments are lower and a lump sum payment or balloon payment is payable at the end of the specified term. However, at the end of the term you have the option to make the balloon payment whereby the car becomes your property, or you can change the vehicle to a newer one and continue with monthly repayments. You can also return the car to the dealer, and providing you have not exceeded mileage restrictions you won’t have to pay any more on it.
Dealership finance: You can also arrange car finance through various dealerships, but this quite restrictive because it means you will have to get your vehicle through that dealership. It can also be quite expensive to purchase this way, and a number of dealerships specialist in offering their own finance to those with poor credit, which can be even more expensive.
Bank loan: If you have good credit then you may find that a standard bank loan is the best option for your car purchase. With a standard bank loan your finance will not be secured against the vehicle. You can also get some very good rates, and you can purchase your vehicle from anywhere, whether it is a showroom, trade, or via private sale.
Car specific loan: Some lenders offer car specific loans, which provide another solution for those wishing to purchase a vehicle. However, these loans will often restrict you in terms of where you have to purchase your vehicle from, although they do not restrict the type of vehicle that you purchase.
Lease or credit purchase: With lease or credit purchase you make monthly payments on the vehicle that you purchase for a set period of time. A lump sum value of the vehicle is deferred to the end of the term. At the end of the repayment term you will have to settle the deferred lump sum through payment, finance, or part exchange.
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