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Choosing the Correct Way to Finance a Car

There is no single correct way of financing a car you want to be. The correct way is the way that suits your particular needs and circumstances – and these may differ quite markedly from someone else’s.

Choosing the correct way for you

It might sound easy to say that the correct way is the finance deal that suits your individual needs and circumstances, but this is made no easier by the sheer range of financing options available – especially when any car dealer is likely to be pressing you to sign up to the particular finance you are likely to be offered on the forecourt.

To give yourself the independence and the breathing space you are likely to need in order to make an informed choice, therefore, you might want to draw on the expertise and experience of a car finance broker.

A broker is entirely independent, typically tied to no one finance provider and there to act solely in your own best interests. This means assessing the most appropriate way for you to finance your car purchase – and to do so at a competitively priced rate.

You may take further confidence and reassurance that an independent car finance broker is authorised and regulated by the Financial Conduct Authority (FCA) and is bound by the rules impose by that industry regulator.

Your choice

With the help of independent advice – rather than the limited choices you are likely to be given by any car manufacturer or dealer – here are some of the finance options you might want to consider:

Personal loan

  • your high street bank is a source for personal loans which might be used to fund the outright purchase of a car – without the need for a deposit;
  • for car finance, they are typically unsecured loans, although the rate of interest on the borrowing may appear relatively expensive;

Hire purchase (HP)

  • hire purchase is a well-established way of buying goods on credit and is commonly used to finance the purchase of a car;
  • a deposit – typically of around 10% of the purchase price – is required, and then you pay equal monthly instalments until the balance is paid off;
  • it is important to remember that ownership of the vehicle does not pass to you until the final instalment has been paid and that – as the checking service HPI Check points out – it is illegal to sell a car on which there is outstanding finance;

Personal Contract Purchase (PCP)

  • it is possible to reduce the monthly instalments you pay by arranging Personal Contract Purchase (PCP);
  • a deposit is still required, but full payment of the purchase price is delayed until the end of the contract;
  • in the meantime, you are paying only the amount by which the value of the car is reducing;
  • at the end of the contract, you may choose to make a final “balloon” payment, representing the current value of the vehicle, or instead hand it back to the finance company;

Personal Contract Hire (PCH)

  • just as the name suggests, this is an agreement purely for the hire or lease of the vehicle, without your having any intention of buying it either during or at the end of the lease agreement.

Choosing the correct way to finance a car is entirely a question of finding the correct way for you and your individual needs and circumstances. This is likely to reveal a number of financing options – on which you might want to take the advice of an independent car finance broker.

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