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Which Type of Car Finance Is Right for Me?

by Olufisayo
Car Finance

Car finance world can get complicated fast, that’s why we’ll take you through the options so it’s easier to pick the right fit for you. Check out the most popular car finance choices down below – whether you want to change a car every year or become an owner. There’s a way to fund a car for everyone, so let’s get right into it!

If you want to own a car

There are multiple choices including Hire Purchase and Personal Contract Purchase if owning a new car is a priority to you. With this type of finance, it’s best to use a car finance calculator to check the estimate for the deposit, monthly payments, and other useful information.

Hire Purchase

The first option Hire Purchase (HP for short) allows you to pay equal monthly installments over 3-4 years. You’ll usually need to pay a deposit which can also be covered with part-exchanging an old car.

The monthly price will depend on how long you’ll want to finance a car and the deposit amount. For example, financing a car over four years will be cheaper than three – however, the interest rate goes up the longer the contract is extended. Similarly, the more deposit you pay, the less monthly payments will cost you.

At the end of the agreement, you will need to pay the final payment also known as Balloon Payment to own the car.

Personal Contract Purchase

Another option is Personal Contract Purchase (PCP) which is also an excellent way to own a brand-new car. It works similarly to HP finance but has lower monthly payments and mileage restrictions.

Even though PCP monthly payments are more affordable, you’ll need to pay a larger lump sum at the end if you want to own a car. However, other options are available:

  • At the end of the contract hand the car back in without paying Balloon Payment
  • Trade a car for a new one

PCP is a bit more flexible than HP car finance, so if you’d like to own a car, but not sure where you’ll be in a few years-time then consider PCP.

If you want to change the car after the contract

It’s understandable if you don’t want to keep the car anymore. Perhaps you’d like to get a new model or simply can’t afford a large payment at the end of the car finance deal. In that case, check out the deals that are available for you.

Personal Contract Hire (Leasing)

This option allows you to change the car every one to three years and pick newer models for a lower price as ownership is not a choice.

With PCH, repair and maintenance price is included with the payments, so you don’t need to worry about unexpected costs or depreciation. Additionally, the payments work out cheaper than Hire Purchase finance since you don’t have an option to own the car at the end of the deal. You’ll also have greater flexibility to set your agreement term.

As with everything though, there are a few things to take into consideration before taking out a PCH finance. You’ll need to be careful not to go over agreed mileage as that may result in additional costs. The fact is if you change your mind there’s simply no way to own a car.

Alternative ways to fund a car

There are other alternative car financing options you could consider too if none of the other choices fit your circumstances or lifestyle right now.

Buying with own cash

This method could save you a lot of money in the long run as you don’t need to pay interest fees when purchasing a car outright. You also can choose whether you want to pay right away or monthly and save it towards paying the balloon payment at the end.

Beware though – if you end up paying in full, you’re not protected by the Consumer Credit Act which protects against fraud. A good alternative would be to get a credit card and pay the deposit with it as there’s proof that you paid.

Bank loans

Personal loans could be the way to go if you look around and see that the interest rates are high elsewhere. They can provide loans for a few years with a low APR so it’s worth looking into different banks to get the best deal. Before doing that, however, you should know what’s your credit score to see if you even qualify for the loan.

The Endnote

And here you have it, hopefully, the article has been useful to you and will help you decide which type of car finance suits you the best. Don’t forget to look at and weigh all the pros and cons before getting into a deal. It’s much easier to agree to car finance from the offset rather than negotiate it while being bound to it.

Share your thoughts down below! What car finance would you be most likely to get?

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