In a story published on the 5th of July 2017, the Guardian newspaper mentioned “an explosion” in the availability of car finance deals that sustains the level of purchases of new and used cars in the UK.
This brief car loans guide may be a help in understanding some of the car finance options which prove popular amongst consumers:
- probably the most popular form of car finance is that used to purchase a new or used car from a recognised car dealer;
- indeed, practically every dealership is likely to offer a customer some form of unsecured loan in order to close the deal on the purchase of a car – not only is there profit in the sale, but the dealer may also earn a commission on arranging the car finance;
- despite the tempting convenience of accepting a finance deal without having to leave the dealer’s showroom or forecourt, however, you run the risk of taking on a less competitive car loan than you might find elsewhere;
- car loans from specialist finance brokers, for example, are typically arranged after an exhaustive search of the whole car finance market to find the most appropriate and competitively priced deal – and one which gives you the freedom to choose your eventual purchase from any reputable car dealership;
- to help you know exactly how much any finance deal is going to cost, these specialist car finance brokers typically offer a simple to use calculator on their website;
- one of the most traditional forms of credit for car purchase is the hire purchase agreement;
- unlike car loans, however, hire purchase agreements do not result in your taking immediate ownership of the vehicle – you own the car only when you have paid the final hire purchase instalment (and may not sell it without settling the hire purchase company’s account before that time);
Personal Contract Purchase
- it is also important not to confuse car loans with Personal Contract Purchase (PCP) arrangements;
- Which? magazinedescribes the way in which PCPs work – effectively involving payment of an initial deposit, followed by low monthly payments (during which you are effectively hiring the vehicle), until the end of the contract, when you either pay a final “balloon” instalment in order to own the vehicle or simply return it to the PCP finance company;
- although PCPs might be suitable for those who want to drive a new car every three years or so (the typical length of one contract, which may simply be rolled over into the next), it is probably less economical a deal, than either hire purchase or a car loan, if you intend to keep the car and take ownership of it at the end of the PCP.
If you are looking to buy a new or used car, you are likely to encounter a bewildering array of different car finance deals – so it is important to understand how car loans are distinguished from other form of finance.