Are you planning to buy a decent and a reliable car? Many of US are searching to buy a new or used car but need car credit loan, most of them would find two different options, 1. Nationalize Bank and 2. Car Finance Company. Before you begin, you need to make sure that auto loan lender or a finance company that you choose is professional and experienced; and understands your car requirements. In the present economic scenario, owning a car loan isn’t a difficult task, and moreover with lots of auto loan providers and multiplicity of options, low interest auto loan rates aren’t something which seems far from reality. Further, there’s intense competition among the auto loan providers, and this automatically adds to the advantage of borrower. But amidst all the positive environment that is available to auto loan borrower, it becomes quite necessary to mention here that auto loan lenders will not provide low interest auto or car loans, until they are not satisfied with your credit score.

If you have a credit score of less than 640, then the conditions becomes sensitive for you, and in such a situation and lenders will think twice before passing your auto loan application for further processing. The most significant fact to know out here before the lender offers an auto loan is to check for credit score and also the past credit score rating. If you have impressive credit score, there’s nothing that needs to be done from your side, except filling the application and providing the proof of your credit report that will be attached with the loan application.

Car finance rates are variable, and this variability depends upon the kind of auto loan that you are going to apply. Again the question of low interest rates comes into the picture if you are searching for the lenders who can offer you the desired interest rates. This will help you to make a choice from the line of luxury cars rather than unwillingly settle for the basic car models. In general, the loan term for the auto loan can be settled between 6-months to 5-years. If you are going for used car loan, the loan term will be automatically reduced. Last, make sure that the new car loan that you hire is easy to repay.

Today due to many lenders in finance business the market of online car financing is highly viable. Individual will find wide range of financing options, but before you begin, consider all the auto financing options available to you. The most efficient way to avail the best auto financing options is to match the loan quote from multiple lenders. While comparing car loan quote be sure to look at the annual percentage rate (APR) and over-all cost of the entire loan. The whole cost includes amount borrowed, added to the deposit, interest paid and other charges.

Before you jump on to any deal it is suggested that you approach toward professional and experienced auto finance company that will understands your requirements and desire to own a decent car, and also help you with find low interest auto finance. A specialized auto finance company will compare your credit history report and offer you the affordable interest rates for the new or used vehicle financing you needs. This will make you a car owner, without you actually worrying about financial scruples.

Car finance has become big business. A huge number of new and used car buyers in the UK are making their vehicle purchase on finance of some sort. It might be in the form of a bank loan, finance from the dealership, leasing, credit card, the trusty ‘Bank of Mum & Dad’, or myriad other forms of finance, but relatively few people actually buy a car with their own cash anymore.

A generation ago, a private car buyer with, say, £8,000 cash to spend would usually have bought a car up to the value of £8,000. Today, that same £8,000 is more likely to be used as a deposit on a car which could be worth many tens of thousands, followed by up to five years of monthly payments.

With various manufacturers and dealers claiming that anywhere between 40% and 87% of car purchases are today being made on finance of some sort, it is not surprising that there are lots of people jumping on the car finance bandwagon to profit from buyers’ desires to have the newest, flashiest car available within their monthly cashflow limits.

The appeal of financing a car is very straightforward; you can buy a car which costs a lot more than you can afford up-front, but can (hopefully) manage in small monthly chunks of cash over a period of time. The problem with car finance is that many buyers don’t realise that they usually end up paying far more than the face value of the car, and they don’t read the fine print of car finance agreements to understand the implications of what they’re signing up for.

For clarification, this author is neither pro- or anti-finance when buying a car. What you must be wary of, however, are the full implications of financing a car – not just when you buy the car, but over the full term of the finance and even afterwards. The industry is heavily regulated in the UK, but a regulator can’t make you read documents carefully or force you to make prudent car finance decisions.

Financing through the dealership

For many people, financing the car through the dealership where you are buying the car is very convenient. There are also often national offers and programs which can make financing the car through the dealer an attractive option.

This blog will focus on the two main types of car finance offered by car dealers for private car buyers: the Hire Purchase (HP) and the Personal Contract Purchase (PCP), with a brief mention of a third, the Lease Purchase (LP). Leasing contracts will be discussed in another blog coming soon.

What is a Hire Purchase?

An HP is quite like a mortgage on your house; you pay a deposit up-front and then pay the rest off over an agreed period (usually 18-60 months). Once you have made your final payment, the car is officially yours. This is the way that car finance has operated for many years, but is now starting to lose favour against the PCP option below.

There are several benefits to a Hire Purchase. It is simple to understand (deposit plus a number of fixed monthly payments), and the buyer can choose the deposit and the term (number of payments) to suit their needs. You can choose a term of up to five years (60 months), which is longer than most other finance options. You can usually cancel the agreement at any time if your circumstances change without massive penalties (although the amount owing may be more than your car is worth early on in the agreement term). Usually you will end up paying less in total with an HP than a PCP if you plan to keep the car after the finance is paid off.

The main disadvantage of an HP compared to a PCP is higher monthly payments, meaning the value of the car you can usually afford is less.

An HP is usually best for buyers who; plan to keep their cars for a long time (ie – longer than the finance term), have a large deposit, or want a simple car finance plan with no sting in the tail at the end of the agreement.

What is a Personal Contract Purchase?

A PCP is often given other names by manufacturer finance companies (eg – BMW Select, Volkswagen Solutions, Toyota Access, etc.), and is very popular but more complicated than an HP. Most new car finance offers advertised these days are PCPs, and usually a dealer will try and push you towards a PCP over an HP because it is more likely to be better for them.

Like the HP above, you pay a deposit and have monthly payments over a term. However, the monthly payments are lower and/or the term is shorter (usually a max. of 48 months), because you are not paying off the whole car. At the end of the term, there is still a large chunk of the finance unpaid. This is usually called a GMFV (Guaranteed Minimum Future Value). The car finance company guarantees that, within certain conditions, the car will be worth at least as much as the remaining finance owed. This gives you three options:

1) Give the car back. You won’t get any money back, but you won’t have to pay out the remainder. This means that you have effectively been renting the car for the whole time.

2) Pay out the remaining amount owed (the GMFV) and keep the car. Given that this amount could be many thousands of pounds, it is not usually a viable option for most people (which is why they were financing the car in the first place), which usually leads to…

3) Part-exchange the car for a new (or newer) one. The dealer will assess your car’s value and take care of the finance payout. If your car is worth more than the GMFV, you can use the difference (equity) as a deposit on your next car.

The PCP is best suited for people who want a new or near-new car and fully intend to change it at the end of the agreement (or possibly even sooner). For a private buyer, it usually works out cheaper than a lease or contract hire finance product. You are not tied into going back to the same manufacturer or dealership for your next car, as any dealer can pay out the finance for your car and conclude the agreement on your behalf. It is also good for buyers who want a more expensive car with a lower cashflow than is usually possible with an HP.

The disadvantage of a PCP is that it tends to lock you into a cycle of changing your car every few years to avoid a large payout at the end of the agreement (the GMFV). Borrowing money to pay out the GMFV and keep the car usually gives you a monthly payment that is very little cheaper than starting again on a new PCP with a new car, so it nearly always sways the owner into replacing it with another car. For this reason, manufacturers and dealers love PCPs because it keeps you coming back every 3 years rather than keeping your car for 5-10 years!

What is a Lease Purchase?

An LP is a bit of a hybrid between an HP and a PCP. You have a deposit and low monthly payments like a PCP, with a large final payment at the end of the agreement. However, unlike a PCP, this final payment (often called a balloon) is not guaranteed. This means that if your car is worth less than the amount owing and you want to sell/part-exchange it, you would have to pay out any difference (called negative equity) before even thinking about paying a deposit on your next car.

Read the fine print

What is absolutely essential for anyone buying a car on finance is to read the contract and consider it carefully before signing anything. Plenty of people make the mistake of buying a car on finance and then end up being unable to make their monthly payments. Given that your finance period may last for the next five years, it is critical that you carefully consider what may happen in your life over those next five years. Many heavily-financed sports cars have had to be returned, often with serious financial consequences for the owners, because of unexpected pregnancies!

As part of purchasing a car on finance, you should consider and discuss all of the various finance options available and make yourself aware of the pros and cons of different car finance products to ensure you are making informed decisions about your money.

Stuart Masson is founder and owner of The Car Expert, a London-based independent and impartial car buying agency for anyone looking to buy a new or used car.

Originally from Australia, Stuart has had a passion for cars and the automotive industry for nearly thirty years, and has spent the last seven years working in the automotive retail industry, both in Australia and in London.

Stuart has combined his extensive knowledge of all things car-related with his own experience of selling cars and delivering high levels of customer satisfaction to bring a unique and personal car buying agency to London. The Car Expert offers specific and tailored advice for anyone looking for a new or used car in London.

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