If you’re looking for car finance but aren’t sure how to get the best rate or how to find the best car loan agreement for you, you’re probably not alone. It can be tricky knowing the different types of car loans, the pros and cons and which suit your personal circumstances best. Refused Car Finance have put together an informative guide on all thing’s car finance related and helps you decide which is best for you.
Types of Car Finance
In the UK, there are typically 3 types of car finance agreements that are most popular. They include a personal loan option, Hire Purchase agreement and Personal Contract Purchase agreement. Each finance agreement is similar on the basis that you borrow a set amount of money from a finance lender and pay it back in monthly installments with interest.
A personal loan option is the most flexible as it can be used to buy anything you want. They are usually offered by banks or building societies but there are also many online personal loan companies. With a personal loan, you can buy the car outright and become the automatic legal owner of the car. This is good if you want to sell the car at any point. Personal loans tend to be offered to people with good credit and if you are applying for bad credit car finance, you may struggle to get approved.
Hire purchase is when you are essentially hiring your vehicle from a finance company. You pay fixed monthly payments until the end of the agreed term and then once the final payment has been made, you become the legal owner of the car. The loan is secured against the car so if you fail to meet the repayment schedule, the car could be repossessed.
Personal Contract Purchase
This type of finance agreement is similar to Hire Purchase but at the end of the agreement you have 3 options. You could hand the car back and the agreement ends. You can buy the car outright and pay the balloon payment at the end of the agreement. You will then become the automatic legal owner of the car. Or you could also get a new car by using the resale value of your current car towards a new car on another PCP deal.
What if You have Bad Credit?
Getting car finance with bad credit can be hard but there are a few options you could consider.
Guarantor Car Loan
If you have struggled making repayments in the past, then guarantor car finance can be difficult. However, if you can find a guarantor who can support your car finance application, it can be really beneficial. Having a guarantor can strengthen your application as the lender has more confidence that the loan will be paid back on time and in full.
Finance with A Deposit
If you have bad credit then you may consider a car finance deal that requires a deposit. Even if you apply for no deposit car finance deal, having a deposit to put down can be really beneficial. Even if you save up for a couple of months prior to a car finance application, it can help strengthen your application. Lenders tend to favour applicants who have deposit as it is more likely that they will make their payments on time. It also decreases the amount you have to borrow from the lender and can decrease your monthly payments.
Also Read: How To Choose The Right Car Parts
Limit Your Car Finance Applications
Whilst it’s a good idea to shop around for the best loan for you. You should stick to soft search applications only. A lenders website will usually tell you if they are about to perform a credit check. If they perform a hard credit search it will be record on your credit file. If you make multiple applications with a hard search credit check in a short space of time, it can damage your credit score.