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Car Finance Explained

It’s HP PCP, HP or leasing the car, our guide to finance will help you understand the various choices when it comes to buying a second-hand or new vehicle

If you’re interested in getting out on the road, but aren’t able to or don’t want to spend the entire cost of the vehicle up front the car financing option could be the right option for you.

There are a variety of options available in the UK according to your budget and preferences.

What is the meaning of car finance?

The term “car finance” is used as a generic word that describes a wide range of choices that allow you to borrow the funds to purchase new or used vehicles as well as lease it out for a time prior to the possibility of purchase it in full.

How do car financing works?

Whichever car finance option you select in the UK with Motorlend it will involve borrowing money from a loan provider to finance the purchase of an un-owned or new car , the payment of an initial deposit as well as regular installments.

When the agreement – based on the kind of car finance you opt for you’ll have bought the vehicle for cash, and have the option of buying it back, or bring it back to the dealer and leave or begin an entirely new financing deal.

It is also important to adhere to the conditions of the contract , such as adhering to the servicing plan you have chosen as well as not going over the stipulated annual mileage.

What are the various kinds of finance for cars?

Car loan

If you’re unable to purchase a vehicle outright A car loan might be a better option to finance your purchase than other forms of financing for cars. You can choose the amount you’re looking for and the time you’d like to borrow it for. Once the loan is approved, the funds will be transferred directly to your account, allowing you to purchase the vehicle at a private sale or a dealership. Then you can repay the loan in installments. For the best rate loan you can get, make sure that your credit rating is strong as it can be prior to applying.

Personal contract purchase

Personal contract purchase (PCP) you put down a small amount and get an initial loan to cover the cost of depreciation on the vehicle (how is the amount the bank estimates the car will lose in value during the period of the loan). Then you pay monthly with interest for the term you agreed upon before deciding whether you want to exchange the car for a new one and then start an entirely new PCP plan for an entirely new vehicle, or give your car to the dealership, and go on your own, or make an additional installment (the the balloon installment) in order to hold the car.

Hire purchase

In a hire purchase (HP) arrangement that you sign, you pay monthly payments to rent the vehicle – which includes the loan as well as interest. The most common requirement is an initial deposit of 10%, however generally the higher your deposit, the better the terms of your financing will be. You decide on the time you want to pay back generally for up to five years, and after you’ve paid your final repayment, your vehicle is yours to keep.

Personal contract for hire

Personal contract-hire (PCH) (also known as car lease), you lease an automobile for a number of years, before returning it at the time of the lease. As with other finance contracts typically, you pay a deposit and then make monthly payments. Additionally, you can include maintenance plans to the agreement to ensure that you return the car in good shape and avoid penalties.

How much will car financing cost me?

The price of car financing is comprised of the deposit, regular installments, and the final payment you make if you choose to buy the vehicle at the end of your contract. Additionally, there could be additional charges in the event that you have to pay for repairs and maintenance or go over the amount of mileage you agreed to.

Which type of financing is the best for me?

The best choice for you will be based on your individual preferences and financial situation, however there are some things you need to think about:

Are you in search of a brand new or used vehicle? There could be various financing options for your vehicle if it is previously owned

What’s the credit rating of yours? If you have better credit will allow you to access greater variety of financing options and lower interest rates.

Would you rather have more frequent monthly payments, but still own the car in full? With a loan , you’ll own your vehicle from the beginning and with a PCP deal or lease you will not own the vehicle for the entire duration of the contract such as

Do you plan to sell your vehicle at the conclusion of your contract? The hire purchase and loan arrangements usually work best when you plan to own the vehicle

How will you be using your vehicle? Certain finance options place limitations on mileage and can impose penalties in the event that you exceed the limit.

Do I qualify for car financing with a poor credit score?

Car finance companies examine your credit background and credit score to decide whether or not to loan to you. If you’ve experienced debt issues in the past, and you’ve had a poor rating on your credit, then you may not get access to the most favorable deals, and typically, you’ll pay higher rates of interest.

However, having bad credit doesn’t need to mean you’ll get denied financing for your car. We work with experts in car financing for those with people with bad credit. They may be able match you with the perfect financing or car loan.

How will the finance term be restructured at conclusion of the term finance?

The kind of car loan you’ve chosen will affect how you’ll be able to proceed at conclusion of the contract according to:

The personal purchase contract: you are given the option of making one-time ‘balloon’ amount to purchase the vehicle. You can also leave it in its place and return it or sign the fresh PCP contract.

Hire purchase: You’ll own the vehicle after that final deposit has been received.

Personal lease or contract hire: You must return the vehicle at expiration of the lease and you can choose to walk away or to sign a new lease.

Frequently asked questions

Are I eligible to get a car financing deal?

To qualify to get a car loan you must meet the requirements of the financing company. This will likely be a requirement of being 18 years old or older and being an UK resident. Since you’re signing an agreement with a creditor, you’ll be required to prove that you are able to afford regular payments. This is a requirement for the financial institution conducting a credit assessment on you. The better your credit score is, the more likely you will be to be approved to be a candidate for a loan.

What will happen if I have to pay the loan in advance?

The decision of whether paying off the contract earlier is a wise choice is dependent on your individual situation, the kind of car loan you’ve obtained and the terms of the agreement. In most situations the decision to pay off a loan earlier can save money by paying lower interest in the long run. However, there might penalties to take into consideration when you pay off a loan, so be sure to check the conditions and terms.

What are the options for financing the purchase of a car?

There are a few ways to finance an automobile:

Car purchases using credit card planning to make use of credit card that has 0% interest, a purchasing credit card usually the best option since they generally offer decent time frames for interest-free. When the interest-free period is over your rate on the card is most likely to increase, which means you’ll have to pay off what you taken out or think about changing to a 0% account transfer.

Credit cards provide legal protection when something goes wrong in your purchase for example, your vehicle is damaged. Be aware that certain dealerships aren’t able to accept credit card purchases since they’re charged an amount for transactions made with credit cards, which they cannot pass on to their customers.

If you are buying a car using cash buying a car using cash from your pocket is cheaper than financing with a car loan because you won’t have to pay interest. If you’re not able to pay enough money is worth making sure you save as much money as you can due to the same reason. The less of a amount you borrow or the greater the amount of deposit you are able to place down, the less you’ll have to pay in total.

It’s also worth looking into the safety benefits of purchasing a car with finance which allows you return the vehicle to the dealer if defective, and get free repair and maintenance sometimes as included in the deal.

How do you make 0% car finance work?

The 0% interest rate financing arrangement means that you be able to spread the cost of the vehicle over a predetermined time frame, and make monthly payments without having to pay interest in addition. You’ll typically need a solid credit rating and history of credit to be granted approval. Here’s how to get it.

Get a loan with no interest to purchase the car.

Repay the loan in installments over the time period you have agreed to.

Pay the last installment and you will own the car for life

Beware of any scams that have 0% financing. A finance deal that is interest-free might be tempting, however dealerships might look to recoup the cash by charging additional fees and charges including the higher price for purchasing the car.

What is the length of my finance term be?

The duration of your car finance agreement will be contingent on what you’ve agreed with the finance company. Car finance, like HP or PCP is usually between 2 and five years. If you’re getting a loan for a car, it may be a similar period. It’s important to keep in mind that the more you pay in regular instalments , the greater the total amount of interest you’ll pay.