Are There Different Types of Car Finance?

Car finance is a good scheme for pretty much anybody.

It’s a very flexible and straightforward way of paying for a vehicle that you wouldn’t usually be able to afford.

It may not come as a massive surprise to you to find out that there are multiple types of car finance that you can have.

Understanding how these different types of finance work are vital for making the right decision for you.

With that in mind, we are going to be covering the main types of car finance here to help you differentiate.

 

Personal Contract Purchase

The first type of car finance that you can get is the personal contract purchase option, known as PCP.

As one of the most common forms of car finance available, it works a little like this.

You put down a deposit and make monthly payments. However, at the end of the payment period, you don’t necessarily own the car.

You have a couple of options available to you at that point. You can either make a final payment and buy the car outright, you can return it to the dealer, or you can sell it back to the dealership to get money off a new model.

This choice is a popular form of car finance because it has many options available.

 

Hire Purchase

The higher purchase agreement is another option for car finance, and potentially one of the most common alongside the personal contract purchase. It follows the same beginning as before, with the deposit and monthly payments.

However, in the end, you own the car outright, because you set up a plan which pays for the forecast over months or years. It is one of the easiest to try and do if you don’t want to worry about buying a car at the end, having to work out if you wish to sell it or not.

 

Personal Loan

 The personal loan is another option, albeit one which people tend to avoid because it requires having a good credit score, and while you can still get bad credit car finance, it’s often less flexible and prone to higher interest rates.

The personal loan is one which you take without the input of the dealership, and typically from the loan company. It’s important to note that you will be charged according to their interest rates and policies, so research carefully before making a decision.

To summarise, there are different types of car finance what you need to think about when you could try and buy a new vehicle for yourself. Every option has different implications and results, so you should research all three of them carefully before making the correct decision for your needs.

It’s also a good idea to present your desired option to a well-known dealership, as the smaller ones may refuse the service simply because they don’t have the business required to justify it.

However, the majority of places do offer car finance options, so you are free to experiment and find out what works for you.

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REPRESENTATIVE FINANCE EXAMPLE:

Borrowing £7,500 over 4 years with a representative APR of 27.9%, an annual interest rate of 27.9% (Fixed) and no deposit, the amount repayable would be £244.77 per month, and total cost of credit would be £4,248.96 and the total amount payable would be £11,748.97*

*Your rate may differ from the above illustration due to your individual circumstances. All credit subject to status.

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