Types of car finance UK

Buying a new car is expensive. In fact, even picking yourself up a decent secondhand car is going to lighten your bank account by a few thousand quid. Even if you can afford to pay for the car upfront, there is little reason to do so. There are a wealth of financing options for your vehicle out there.

Here, we want to discuss car finance loans in the UK. There are a few options that you have available to you. Make sure that you read through the various loans available so you know which car finance is right for you.

PERSONAL LOANS

Personal loans are your general-purpose loans. The cash isn't specifically for a vehicle, but you can use it to purchase a vehicle if you wish.

If you can qualify for a personal loan, then this is probably the cheapest form of car finance there is. Unlike some of the other car finance options that we are going to discuss, there is no need to put down a downpayment either.

Of course, the major downside to personal loans is that they can be tricky to be approved for, especially if you have a bad credit history. Even if you are approved, there is no guarantee that you will be approved for the amount of cash that you need for a vehicle. Loan matching comparison sites like MoneySuperMarket or Now Loan can help even if you have a poor credit rating.

HIRE-PURCHASE AGREEMENT

A hire-purchase agreement is one of the most common types of car-specific financing.

As the name suggests, you are essentially hiring the vehicle for the duration of the loan. Once the car finance has been paid off, you have 100% ownership of the vehicle.

You will need to make a downpayment for a hire-purchase agreement. This will normally be around the 10% mark. The downpayment means that you stand a greater chance of being approved if your credit isn't brilliant.

The major downside to a hire-purchase agreement is that you do not own your vehicle until the end of the agreement. You are just hiring it. This means that you cannot sell the vehicle until the loan has been completely paid off.

A hire-purchase agreement does tend to be an affordable way to purchase a vehicle.

PERSONAL CONTRACT PURCHASE

A personal contract purchase is an alternative to a hire-purchase agreement.

With a personal contract purchase, you will still be renting the vehicle for the duration of the financing. However, at the end of the loan term, you are going to need to hand back the vehicle. It doesn't belong to you. Think of this as a multi-year rental contract.

That being said, if you do enjoy the vehicle, most personal contract purchases will have something known as a 'balloon payment' built into them.' This means that if you do want to keep the vehicle, you can pay a small amount of cash to the lender and they will give you full ownership.

The major benefit of a personal contract purchase over a hire-purchase agreement is that they tend to be a lot cheaper. This is because you are not paying to ultimately own the vehicle. This means that they can be a great choice for people that change their cars frequently.

VEHICLE LEASING

With a vehicle lease, you are just renting the vehicle. There will be no option to purchase the vehicle at the end of it.

There will be a few caveats in place with vehicle leasing e.g. you cannot drive over a certain number of miles for the duration of the lease.

One of the major perks of vehicle leasing is that somebody else does own the vehicle. This means that you aren't going to be lumbered with massive costs to maintain the vehicle. If you run into any issues, then the leasing company will be able to help you out.

The lack of a purchase option at the end also means that a vehicle lease is going to be cheaper.

This is another great option for car financing if you plan on changing vehicles frequently. In fact, most leasing companies expect you to be switching vehicles with them every year or two.

CONCLUSION

If you are looking for vehicle financing loans, you will have no shortage of options. It is important that you go through what is available and choose the financing option that is right for you. They each bring something a little bit different to the table. Some are great if you want something affordable, while others are brilliant if you plan on actually owning the vehicle.

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