What is Car Finance?
11.9% APR Representative. We are a credit broker, not a lender.
Car finance is essentially a method of paying for your car in manageable monthly instalments rather than in one lump sum up front. There are numerous finance options available, which might make deciding how to finance your car more difficult, but it doesn't have to be. In this guide, we'll go through the many car financing choices available today and how to decide which one is best for you.
How to get car finance
Before we delve into your options you have when financing a car, it’s important to understand how attaining car finance works.
There are various car finance lenders out there, for instance MotoNovo finance is one partner we work with at Essex Car Company. Once you’re accepted for car finance, the lender in question, for instance MotoNovo, will buy the car on your behalf, and you then repay them monthly. The amount you pay each month will vary from person to person and contract to contract as it’s influenced by the length of the repayment term, the interest rate and the finance product itself.
What are your finance options?
Hire Purchase (HP)
Hire purchase car finance will probably be your preferred option if you want to own the car outright at the end of the agreement. During any finance agreement the lender is always the legal owner, up until you pay the final instalment.
The monthly repayments will be fixed so you can budget easily, and this is typically a better choice if you’re looking to buy an older used car.
Personal Contract Purchase (PCP)
With personal contract purchase it works just the same as a hire purchase car finance agreement, however PCP monthly repayments are lower as a chunk of the purchase price of the car is deferred to the end of the agreement. This is known as a ‘balloon payment.’
At the end of the agreement you also have these three options:
1) Pay the lump sum ‘balloon payment’ to own the car
2) Exchange it for a newer car from the same dealership
3) Return the car
This type of finance is ideal if you like to regularly upgrade cars and are interested in newer models.
Personal Contract Hire (PCH)
This finance option is also sometimes referred to as personal leasing, and essentially means you’re renting the car. There will be an agreed mileage limit attached to the contract in addition to wear and tear limits, and if when you come to hand the car back you’ve exceeded any of these, you’ll have to pay an additional fee.
Contract lengths last from approximately 2-3 years, but unlike HP and PCP finance, you won’t have the option to buy the car at the end of this.
Personal Loan
A personal loan is another alternative for financing a car, especially if it is newer. This involves getting a loan from a bank or building society, you then use this to fully pay for the car and then pay the bank back over an agreed period of time. Of course, interest is added on top just like with any monthly finance repayments, but will vary depending on the length of the repayment term, and your credit score.
This option is perfect if you know the car you’re looking at buying will be used over the longer term and you don’t intend on switching.
Find out more about car finance at Essex Car Company
At Essex Car Company we offer both hire purchase and personal contract purchase on all our used cars starting as low as £150 per month. You can get a free credit check on our website today and then submit an application, or speak to a member of our team if you’d like some more finance advice.