Understanding car finance options before signing any contracts is a crucial step to ensuring that you can pay back the monthly amount that you are signing up for. But without fully understanding the finance option you have chosen; it can be difficult to determine whether direct lender car finance or another finance option is best for you.
Set the Monthly Payment Budget
When looking to finance your car, the first important step is to set a monthly budget. Whether this is by making a higher monthly repayment on the loan, to begin with, or financing a slightly older car, this can all help you to maintain an affordable monthly repayment when choosing a car to finance. Though this may take some searching, this is a simple way of ensuring that you can drive the car that you want without overspending as a result.
Understand the Different Finance Options
When it comes to finding the right form of finance for the car that you want, it is important to note that you do have options. Each of these can alter the payment amounts and although some allow you to keep the car when the final finance payment has been made others do not. To help you fully understand the finance options that you have available to you, we have compiled a list of what the three-core finance allow:
Hire Purchase agreements are a loan that is secured against the car and is set up by the car dealer when you apply for finance. Due to the loan being against the car, this means that you do not own the vehicle until you have made the final payment. In addition to this, the rates can be better than personal loans meaning that you may have better options when heading to the dealership directly.
Personal Contract Purchase (PCP)
Personal contract purchases are much like a hire purchase but are a little more complicated. These payments are made monthly like previously mentioned; however, you have numerous options when you reach the final payment. With PCP finance you can either:
- Return the car to the dealership
- Pay the final balloon payment and keep the car
- Put the value you would get at resale towards a PCP finance option for another car.
As with a hire purchase agreement you need to pass a risk assessment as well as a creditworthiness check. This will show to the dealer that you can make the repayments with ease without defaulting payments. In addition to this, you will be required to pay a deposit when signing up for the finance option.
Personal Contract Hire (PHP)
PHP is a car finance option that means you never own the car. To be eligible for this form of car finance, you need to pass a credit check. This will ensure that you can pay back the monthly repayments without any defaults. The dealership will then require you to pay a few months of the payments upfront. Though they do check your credit to see if you are eligible, many dealers may not look into whether or not you can meet the final repayments. As a result, you need to ensure that you can meet the repayments yourself.
In order to keep the payments down and avoid extra charges, you must stick to the agreed mileage as well as keep the car in good condition. When you have made the final repayment, it is then your responsibility to return the car to the dealership.
With this in mind, there are several ways that you can finance your car without having to spend a small fortune, allowing you to get out on the road in no time.