What Type of Car Finance Is for You?
Personal loan is perceived to be the most popular way to finance a car according to many surveys.
Borrowing money from a bank, building society or other lender gives you instant ownership of the car. Comparison websites such as money supermarket will show you which lenders offer the best deals.
The annual percentage rate (APR) is the easiest way to compare loans, and essential in working out how much a loan will cost you over the repayment period chosen. If the APR isn’t mentioned then ask the question, the headline rate is not always what you get it depends on your individual credit rating.
It’s a temptation to take a longer repayment period which makes the monthly repayment smaller but you will pay more interest. Keep the loan period as short as possible.
The downside to a personal loan unsecured is that in the event of default any of your assets could be seized. With dealer finance only the car is at risk in the event of payment default.
Go for a personal loan if you say YES to any of the following:
• You don’t have any deposit
• You want to own the car outright
• You plan to keep it for a while
• You don’t want annual mileage restrictions
After a bank loan hire purchase (HP) is the easiest way to buy a car.
Under HP agreements there’s usually a deposit to pay, typically 10% followed by fixed monthly payments. The car is owned by the HP funder until it’s paid for including any option to purchase fee. At that point the customer has the right to sell the vehicle.
However some customers do sell their cars before the final payment and the good news is for buyers of non-paid up cars is that the law protects private purchasers who buy without knowing the car is not fully owned and no matter what the police or anyone else tells you will get good title if you buy a car on HP in these circumstances. The finance company can ultimately take action against the seller but that’s not your problem.
The credit on an HP agreement is secured against the car, so it’s like dealer finance in that the car can only be pcp finance specialist seized in the event of default. If you need to sell the car before the end of your agreement you will have to settle the outstanding monies first and early settlement fees may apply.
Go for HP if you say YES to 1 of the following:
• Ultimate ownership is important to you
• Your budget and circumstances suit fixed monthly repayments
• Your disposable income may decrease over the agreement term (eg if you’re planning a family)
• You like credit secured against the car only
• You don’t mind not owning the car until the debt is fully paid.
Personal Contract Purchase (PCP
This product is probably the most popular product of all.
It’s a bit like HP in that you pay a deposit, a fixed rate if interest and monthly repayments usually over 12 to 48 months.
Where PCP differs from HP is at the end of the agreement you have 3 choices.