We all have always dreamed of owning a new car, but with current credit scores, actualizing this dream would take forever. However, the growing desire to update our life status may be due to our growing family or the pride and fulfillment of owning a car.
We all want to be tagged car owners irrespective of our current financial condition; this is why car finance companies exist solely to lessen the burden and make our dreams come true.
If you have a regular source of income with excellent credit eligibility, many car financing companies will look beyond numbers and offer fair deals that not only put you behind wheels but also help to rebuild your credit.
Key Insights
1. Car finance companies allow you to manage the payment of your car, offering you the opportunity to spread the cost over some time (months or years).
2. With car finance companies, you can be sure of improving your credit scores while still pursuing your dream of acquiring a new car.
3. With the flexible options offered by car finance companies, you can purchase your dream car, making car ownership accessible, effortless, and manageable.
What is Car Finance?
Car financing is a vital component of the automotive sector, allowing customers to purchase cars in a financially responsible manner.
Car finance refers to financial services that let people and businesses buy new or used cars without paying the total price upfront. One option is to use a car loan to spread the expense of a car over a number of months or years.
How Does Car Finance Work?
As a consumer, you benefit from car finance through its flexible solutions to ensure you realize your dream of having a car. Typically, car finance involves borrowing money to cover the cost of the vehicle acquired. You get the money from financial institutions like a bank or credit union or the financing arm of a car manufacturing company.
You start by reviewing the various finance options available, making an informed decision, and drawing up payment plans. However, it is essential that you carefully consider the overall cost of the loan, including interest and fees, to ensure it fits within your budget.
The payment plans will outline the pattern of payment, usually regular installments over a set period stipulated on a contract document, which is usually three to six years. The interest rate can vary based on factors such as the set period, your credit score, and the loan amount.
At the end of the contract, depending on the finance option you take, you may either own the car at once or have the option to buy it.
Types of Car Finance
Car finance is diverse, offering several flexible options tailored to suit individuals’ financial situations and needs, each with its own set of terms and conditions:
-
Hire Purchase (HP)
In the hire purchase finance type, you pay off the cost of the car in monthly installments, including interest and other fees, until you completely own it. This option requires a deposit of a certain percentage, usually 10%. You will then pay the cost of the car in monthly installments, but you won’t own it or be able to sell it off until you pay the final payment alongside the ‘option to purchase fee,’ after which the car becomes yours. Additionally, you can choose your preferred period to make repayments, usually up to five years, and your debt is secured against the vehicle. So, if you stop making payments, the company may take the car from you to recover the amount you still owe. If this is done a few months into the contract, you may have to pay the penalty fee.
-
Personal Contract Purchase (PCP)/Lease
In a Personal Contract Purchase contract/lease, you won’t buy the car at once. You will make a non-refundable deposit and proceed to make monthly payments to cover interest and the cost of depreciation (as defined by the owner).
At the end of the contract, you may either buy the car by paying its value, usually as agreed at the start of your contract minus your deposit and sometimes with an additional fee, or return the car and initiate a new personal contract purchase contract.
You may also enjoy the privilege of returning the car and walking away. However, you don’t have to pay additional fees, provided the vehicle is not damaged.
-
Personal Contract Hire (PCH)
Under Personal Contract Hire agreement, you never truly become the car’s owner. When purchasing a new vehicle, you will pay a non-refundable deposit and ongoing payments for driving it.
The amount you will pay depends on the car’s value, duration of usage, and any other agreed fees. You may also be able to add servicing plans to the agreement to ensure you return the car in good shape and avoid paying fines, including excessive wear and tear fees.
-
Personal Loans
Personal loans involve obtaining money from a financial institution or credit union to purchase a new car with a payment plan involving making repayments over a set period, usually at a fixed interest rate. It gives you enough money to buy a car at once and realize your dream of becoming a car owner.
The benefit of this type of car finance is that you don’t have to use an asset (such as your car or house) as security. However, you will need a robust and reliable credit history for this type of car financing.
Although sometimes it is easier to obtain a car loan or a better rate using your car as security, you may risk losing your car if you fail to repay.
Here is an excerpt from Nischa giving insight into whether you should buy, lease, or finance a car “If you are someone who tends to keep your cars for a long time, then going for the hire purchase means you can pay your car off and then you won’t have the stress of having to keep up with monthly payments and you have full ownership of the car which means you can do what you want with it.
On the flip side, going for the lease or personal contract purchase option means you can go for a newer car with lower monthly payments and you can keep changing your car more regularly while not worrying about whether you will be able to sell the car in the future and for how much. You also, in this case, don’t have to worry about the ongoing maintenance if you keep trading in the car before the warranty runs out which is usually around three-year mark.
However, you need to keep the car in pristine condition; otherwise, you will get charged for it when you return it. There are restrictions also when it comes to the personal contract purchase or lease, so that includes the changes you can make to the car and also the number of miles you do on it. If you go over that mile restriction, then you will incur an additional cost per mile.
If you do have the money to buy a car outright, then this, in my opinion, is a solid option where you don’t have the stress of any monthly payments. If you were to go for this option unless you really know when it comes to cars and you can flip it on for a profit then, instead buying a pre-owned car that is two to three years old and has already depreciated substantially at someone else’s expense might well be the best option.”
Top 9 UK Car Finance Companies
If you have finally decided to go the car financing way, here are the top UK car finance companies to consider;
-
Tesco
Tesco Car Finance is one of the most popular finance companies in the UK. It offers car loans at a fixed interest rate, giving you the opportunity to know your monthly payments. The term of Tesco’s loans ranges from 12 to 120 months.
-
HSBC
HSBC Bank offers car loans when it confirms that many people are interested in purchasing their dream car but are unable to finance it. They provide car loans at an interest rate starting from 8%, a processing fee of 0.5% of the borrowed amount, and a term of 48 months.
-
NatWest
NatWest Car Bank, one of the most well-known auto lenders in the UK, offers car loans ranging from 1,000 to 50,000 pounds. The loans have fixed interest rates and equal monthly payments throughout the loan—usually one to eight years—and you own the vehicle from the outset of the agreement.
-
Barclays
Barclays is a British investment bank and financial service provider that offers a car loan at a fixed interest rate to individuals who want to own a new or second-hand car.
-
Santander
Santander provides financing that borrowers can utilize for whatever reason. To be eligible for this Santander loan, you must be over 21, a resident of the UK, and have a stable income of at least 7,500 pounds. The loan will have a fixed interest rate of 3.1% for 60 months.
-
Sainsbury
You may borrow between 7,500 and 25,000 pounds for auto loans from Sainsbury’s Bank, with interest rates starting at 3.4% and loan terms ranging from 1 to 7 years. There are no application or processing fees, and their loan application is simple and quick.
-
AA
AA Car Finance offers car loans at a fixed interest rate. They provide a fast and flexible application process, allowing customers to purchase their dream cars with little or no hassle.
-
AIB
AIB is a financial service provider offering a range of finance options, including car finance, for individuals who want to buy new cars. The car finance service includes competitive interest rates and flexible repayment terms.
-
M & S Bank
One of the well-known providers of auto financing services is M & S Bank, where you may borrow between 1,000 and 25,000 pounds with a 12-to 84-month repayment period. It would help if you were older than eighteen, a UK resident, and have a minimum of 10,000 pounds in annual income.
Read Also
How to Start a Profitable Car Rental Business in 2024
Top 12 Unique Business Ideas for 2024
How to Create an Optimized Google Business Profile in 2024
What is Real Estate and How Do You Build a Thriving 21st Century Real Estate Business
Conclusion
Making the right choice when accessing finance to acquire a new car is critical. Several options with their unique features are available for you to make an informed decision. Having a car that doesn’t only satisfy your desire but also meets your other needs gives you an invaluable experience.
“Increase your brand visibility and stay ahead of competitors! DM us directly on WhatsApp for a personalized approach to your business digital success.”