What Are the Different Types of Car Finance Available?
What is car finance?
Car finance is a great way to purchase and drive vehicles. It allows you to segment a car’s large cost into manageable monthly repayments. The likelihood of your application being accepted depends on your credit score and credit history, as there is a risk to the lender of payments not being paid.
What car finance options are available?
A benefit of car finance is that it isn’t a one-size-fits-all process. Various finance products are available to best suit your car budget and what you’d like to be included in the payments.
Hire Purchase
You'll put down a deposit for the vehicle and then make monthly repayments that are made up of the car's value plus interest. The payments are typically more expensive in comparison to other finance products.
PCP Finance
This finance option is a bit more complex than HP finance. A deposit is still required; however, you can add in other factors that will contribute to the monthly repayments, such as:
Annual mileage limits
Breakdown and maintenance cover
Road tax
Adding these will make the monthly payments costly; however, you don’t have to worry about numerous car-related payments as they are combined into one.
PCP payments are still considered less expensive than hire purchase finance payments as you're essentially leasing the vehicle for the agreed contract length. But you do have the option to purchase it outright, and a larger payment is required that is considered the vehicle's future value.
Personal Leasing
This form of finance is similar to PCP in that you have the road tax, maintenance etc., added to the monthly repayments. Where it differs is that you will only be paying to drive the car with no option to purchase it at any point. Once the contract ends, you’ll be expected to return it.
But what about 0% interest finance?
When you take out a car finance loan, the APR will be included with the payments. The great thing about 0% finance is that you'll only be making payments on the car's value. For the duration of the contract, no interest is attached to the loan.
Because there is no added interest, you may be expected to deposit up to 40% of the car’s value. You’re also more likely to be accepted for 0% car finance if you have an excellent credit score and history.
What do you need to apply for car finance?
When it comes to applying for car finance, you’ll need to be over 18 and submit the following basic information:
Proof of income, e.g. Driver’s Licence
Address history for the past three years
Employment history
Marital status
Contact details
The amount you want to borrow
Amount of your deposit
The contract length
In some cases, you may be able to conduct a soft search first, which can determine your eligibility for car finance without affecting your current credit score.
How do I start my car finance application?
The application process will vary between dealerships and lenders. In most cases, you’ll have the option to make a general car finance application or finance a specific car you’ve seen on the website or at the dealership.
If you choose to finance your car with Rix Motors, we have made the application process straightforward to follow.
How do I choose the best car finance option for me?
This ultimately depends on your preference. Hire purchase finance best suits drivers who are sure that they want to own the vehicle they’re paying for. PCP and Personal Leasing, however, better suit motorists who prefer to change their vehicle and like make all-in-one payments.
It’s also important to consider your budget, as well as the likelihood that you’ll be able to keep up with the monthly payments. If your credit score is less than perfect, it is possible to apply with a guarantor who can help you get approved, be sure to ask whether the dealership offer this before starting an application.
At Rix Motors, all of our quality used cars can be purchased on finance. We specialise in high-performance vehicles from Porsche to Mercedes, and a finance contract you won’t have to make such a large payment upfront.
You can start your finance application with us today and one of the team will be in touch as soon as it’s been reviewed.