Getting finance for buying a car — which is best for you?

In an ideal world, it would be great to pay for a new car upfront. Unfortunately, many people do not have these large sums of money readily available.

Not to worry though — offers car finance to many people, regardless of their credit history. In this post, the brand has provided tips on the many different types of car finance available to you today:

Personal loan

Definition: A personal loan is where you borrow money straight from a bank, building society or another type of lender. As a result, you will effectively have full ownership of the car from day one.

Advantages: Because you’re eliminating the car dealership, you won’t have to worry about annual mileage restrictions. A deposit won’t be required either. You’ll also be able to spread the time it takes to pay off your loan between one and seven years.

A note of caution: A poor credit rating can make it difficult to obtain a personal loan.

Hire purchase (HP)

Definition: If your end goal is to own the car, hire purchase is for you. Following an initial deposit — most commonly ten per cent of the vehicle’s price — you will pay fixed monthly payments over an agreed period of time. As soon as the final instalment is paid, the car is completely yours.

Advantages: As well as the car eventually being yours, hire purchase means that you will only have low-risk credit secured against the vehicle.

A note of caution: As you will not own the car until all payments have been made, be aware that you will have no legal right to sell the vehicle up to this point.

Car leasing

Car leasing is a long-term rental option and falls into two main categories:

Personal contract hire (PCH)

Definition: Otherwise known as personal leasing, personal contract hire involves renting a car for a period of time agreed between yourself and the dealership. Once this is decided, you will pay a low deposit and make fixed monthly repayments.

Advantages: One of the main benefits of PCH is that you will not suffer a car’s depreciation — the repayments you make cover this. Another advantage is that as you are only renting your car, you will be able to change it for a newer vehicle when you want.

A note of caution: PCH means that you will never own the vehicle — when you make the final payment you will have no other option but to hand the car back to the dealership. Secondly, you will usually be restricted to an agreed mileage limit.

Personal contract purchase (PCP)

Definition: Personal contract purchases are similar to the other finance options. For example, you will need to pay a deposit and agree to monthly payments over a set time period.

However, the similarities end once you have made the final payment as you will have three options:

  1. You can return the car to the dealership, which will cost you nothing extra so long as you haven’t exceeded the annual mileage limit and have brought it back in a good condition.
  2. You can trade in the car and use any of its guaranteed future value towards the deposit of your next vehicle.
  3. You can keep the car, though one last balloon payment will be required — this will be the car’s guaranteed future value.

Advantages: As well as having numerous options available to you at the end of the contract, PCP offers lower monthly payments than many other forms of car finance.

A note of caution: Don’t forget about the clauses attached to the final options. You’ll have to save up for the balloon payment in advance if you plan to keep the car, while going above the annual mileage limit could result in a hefty charge if you want to hand the vehicle back.