Understanding the complexities of car financing can seem impossible, particularly if you are choosing to purchase your first car. In this article, we will be providing you with information that you need to know when opting for car finance loans.
Understanding the Core Loan Types
When looking to finance your car you must first be aware of the different loan types that are available to you. Whether you are looking to own the car when your contract is finished, or you are looking to return the car and get a newer model, several loan types can benefit you. To help you choose the right one, we have compiled a list of the three core loan types that you can choose from.
Personal Loan: This style of loan involves you taking out an unsecured loan to pay for the car and then pay back the monthly repayments. Due to this being an external loan that you have borrowed, you own the car as soon as the dealership has the money. Therefore, this means provided the original loan is repaid, the car is yours. You can even sell the car on to pay off the loan if you wish, without worrying about any contracts.
Hire Purchase: A hire purchase agreement is different from a personal loan as this is taken out with your chosen finance company and secured against the vehicle itself. As part of this agreement, you will make monthly payments to the finance company as you are effectively hiring the car from them. At the end of the finance agreement, you will then own the car. The deposit on this type of finance plan is normally around 10% of the value of the car, however, there is often the option to reduce your monthly payments by providing a larger deposit upfront. Unlike a personal loan, you can’t sell the car until the finance is paid off in full.
Personal Contract Purchase: This finance type is similar to the hire purchase as it still requires you to pay a deposit as well as monthly repayments. Although, it does differ slightly, as at the end of the agreement you do not automatically own the vehicle. They often work out cheaper monthly than a hire purchase as you are required to pay set monthly costs for the length of your contract only. At the end of your payment terms you have the option to purchase the car, this is known as a balloon payment, or begin the hiring process again but with a new car.
How Can You Apply?
Once you have decided which loan option is best for you, a consideration for your current financial situation and affordability should be assessed. There are options available no matter what your credit score may show, including those for bad credit car loans online. Applying for car finance online has become a desirable modern process, with a variety of options available depending on your personal financial needs. Having these new online application process has streamlined financing cars and has enabled many more applications to be processed in a single day. As part of the application process, depending on your financial situation, lenders will assess either your credit score or monthly income/ expenditure, or a combination of both. This allows for a lending decision based on either your creditworthiness or affordability ensuring that you can afford to pay back the loan on time.
As you can see there are several ways that you can apply for car finance options that can suit your monthly income. Where will you start?