Financing is one way that buying a new car can be made more affordable. Buying a car on finance will mean that you pay the total cost over a period of time rather than upfront.
The car financing options include buying it using a loan, with a PCP, on hire purchase or by leasing the vehicle. Each has advantages and it is important to be aware of them so you can make an informed decision about which is the best for you.
By the time you have read this piece you will know all you need to about financing your car purchase.
The Different Car Financing Options
Personal Contract Purchase
This involves giving a car dealer a deposit, usually at least 10% of the cost. You then pay a monthly fee and a larger flat sum at the end of the term if you want to buy the car in full.
The standard payment term is three years. Some dealers will try to talk you into a four instead of three-year payment period though.
That can sound good, because it means paying less per month, but the increased interest means you will end up paying more overall. An advantage of PCP financing is that you can switch to another car at the end of the term, but a disadvantage is that sizeable final payment for full ownership.
Personal Loan
This method of financing means getting a loan from a finance company or bank to pay for the car. That is then passed on to the dealer and you repay it plus interest over an agreed period.
Hire Purchase
Although not particularly common, it is possible to finance a car via a hire purchase agreement. Again you will put down a minimum 10% deposit and pay the rest monthly – but these payments are usually higher.
A big advantage of hire purchase is that the monthly payments are going towards eventual ownership of the car, unlike PCP payments.
Personal Contract Hire
This is a form of leasing, but unlike with a PCP, you do not have the choice of buying the car at the close of the set payment period. It is simply an extended form of car rental.
Which is the Best for You?
This will depend on factors such as what you earn per month and your credit score. These are the things that any car dealer or loan provider will want to know before letting you finance the purchase.
The best financing option will be to choose a car that is well within your affordability range. That way you will be able to pay off the total cost much more quickly and avoid defaulting, which will damage your credit rating.
If you have a bad credit score, say below 700, you could be facing higher interest rates on any financing deal because companies will view you as a bigger risk.
Financing Car Parts
Of course, financing deals are not just for the overall vehicle – they are available for individual parts too. Tires are one part of a car that need to be replaced periodically and that can be expensive.
Fortunately there are ways of paying for tires and other parts over a period of time instead of immediately. They include credit score safe wheel financing options that will not hurt your credit history.
What can you do With a Financed Car?
Some people like to modify cars, but can you do that if you have financed it? If you are financing it with a personal loan or HP agreement that will generally be fine, as you will eventually own it.
You should only customize a car financed with a PCP if you intend to buy it outright. One leased through a PCH should never be modified.
Hopefully this has given you all the car financing information you could need.
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