Affordable car finance plans are becoming more popular in the UK. But how exactly does the car financing process work? What are the criteria to being accepted for car finance? And are there different types of car financing?
In this post, we’ll explore everything you need to know about how car finance works in the UK. But first…
What is car finance?
For some people, buying a car outright just isn’t possible. For this reason, more and more people are opting for car finance plans as an alternative. Car finance is a great way to get the car you want. Especially, if you can’t afford the expense of one big, upfront payment for it.
Car finance allows you to drive the car without having to pay a lump sum upfront. Instead, you will be paying monthly payments for the car. It’s essentially a loan to cover the cost of the car, which allows you to spread the cost over a period of several months or years.
The lender does own the car until you have paid the borrowed amount, plus any interest or additional charges in full. However, you have full use of the car whilst you are still paying your monthly payments. And when you’ve paid in full, the car is yours to keep if that’s what you opt for.
Who is eligible for car finance?
There are many factors that can impact your eligibility for car finance. Firstly, you must be at least 18-years old and be a resident of the UK. Most car finance companies will not take on temporary residents.
Credit scores will also be taken into consideration. The higher (or better) your score, the more likely you are to be approved for a car finance plan. Lenders will also look at your employment. Things can become slightly more complicated if your income is reliant on benefits or you are retired.
If you are in stable, long term employment, this can increase the likelihood of car finance lenders approving you. However, even if you have poor credit or bad credit, it is still possible to get car finance with My Car Credit.
On top of all that, the car you’re looking to finance will also be taken into consideration. Costs aside, it needs to be less than eight years old when your agreement begins and less than twelve years old when the agreement ends.
How does financing a car work?
Most car finance plans can be tailored to you. You can opt for a bigger initial deposit to reduce monthly payments or a longer duration to spread the cost out further. The amount you pay each month, interest rates, the terms of the agreement and the length of your car finance plan will all vary, depending on what suits you and the lender best.
To begin with, there are a few different types of car finance:
- The simplest form of car finance
- Allows you to spread the cost, plus interest, across a set period of time
- Deposit is not always necessary, but an initial deposit will bring down the monthly costs and you can trade in your old car as a deposit
- The lender simply takes the price of the car (minus any deposit) and adds interest. The final figure is then divided over the term agreed, usually between two and five years
- Monthly payments will never change and there is never a big payment at the end of your plan
- Once you have finished paying the car finance plan, the car is yours
There are some pros and cons to Hire Purchase. For example, there is a fixed interest rate and monthly payments with no annual mileage conditions or fines for wear and tear. However, you will not own the car until you have finished paying the car finance plan.
Although it offers lower monthly repayment options than the Hire Purchase route, this type of agreement is a bit more complicated. With a Personal Contract Purchase, you have an ‘optional final payment’ at the end of your car finance plan. This is sometimes known as the ‘balloon payment’. By deferring some of the cost of the car to be paid at the end of the plan, the monthly payments are cheaper.
For the Personal Contract Purchase, you decide how much of a deposit you want to make and estimate your annual mileage and the length of the contract. Normally, this type of car finance plan is between 3 and 5 years.
Conditional Sale is similar to Hire Purchase, but you pay higher monthly payments and do not have a fee at the end. As soon as you have paid the car finance plan off, the car is yours.
This type of plan is perfect for people who want to keep the car at the end of the plan, with nothing to pay at the end of the car finance plan. In addition, Conditional Sale allows for longer repayment terms, usually between 2 to 6 years. However, you will not own the car until you have paid the car finance plan in full and you must pay a deposit for a Conditional Sale plan. This is usually 10% of car’s value.
For more information, take a closer look at the different car finance options available in the UK.
How do I apply to finance a car?
With My Car Credit, you can apply for car finance in just a few simple steps:
- Complete an application form – fill in our simple online form and we will give you an instant quote.
- We will get in touch with you – one of our Car Credit Specialists will get in touch with you, answer any of your questions and advise on what might be best for you.
- Choose a car from a dealer – we don’t mind if you have already found your car, just let our Car Credit Specialist know when they contact you. If not, we have some trusted dealers who can help.
- Say hello to your new car – we will do all the legwork with the lender and dealer, without it costing you anything.
Get in touch with us today
For an instant quote, use our car finance calculator. It takes into consideration your credit score and is simple to use. With the largest panel of lenders of any UK car finance broker, our chances of finding you the right car finance agreement are increased. We are open 7 days a week, you can call us on 01246 458 810 or email us at firstname.lastname@example.org.
Representative APR 23.9%
Evolution Funding Ltd T/A My Car Credit
Require more help?
Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!