finance options Archives

What Does ‘Finance’ Mean When Buying a Car?

When it comes to car finance, there’s a lot of jargon and acronyms, and it’s easy to find yourself questioning what each finance agreement really means.

This post aims to help you get to grips with what different types of finance actually mean when buying a car, and how they work. Once you’ve understood the different kinds of agreements available, you’ll be on your way to securing a car loan quote that will work for your circumstances.

So, what does ‘finance’ mean when buying a car? Read on to learn more…

What does ‘finance’ mean when buying a car?

In essence, car finance makes the purchase of a car more affordable. It’s a credit agreement between you and the lender, allowing you to make full use of the vehicle whilst paying it off in cost-effective monthly instalments according to a pre-agreed schedule. The amount you pay off will also include additional interest on top.

What are the different kinds of car finance?

The right car finance for you will depend on the kind of agreement and terms that you’re looking for, as well as your own driving preferences and needs.

Car loan

A car loan is a type of personal loan but is specifically designed for use on vehicles.

With a car loan, you borrow the money from either a bank or building society. Once you’ve bought the car, you are its outright owner. You’ll repay the car loan over time via instalments, with added interest. Typically, a car loan is more likely to be granted to those with a good credit score – there are other kinds of car finance available for those with poor credit ratings.

Personal Contract Purchase (PCP)

Do you like mixing up the vehicles you drive? Are you happy sticking to mileage caps or paying excess fees for any vehicular wear and tear? Would you like flexibility in choosing whether or not to own the vehicle at the termination of the agreement? Then PCP is potentially the car finance for you. In fact, PCP is the most popular kind of car finance because of its low monthly repayments and flexibility.

With PCP car finance agreements, you’ll pay a deposit and monthly instalments (plus interest). The larger your deposit is, the lower these payments will be. These payments are typically lower than other kinds of car finance as you’re only paying for the car’s depreciation in value during the time that you’re using it.

You can also choose whether or not you want to own the car once you’ve fully paid off the finance. If you do, you’ll pay a final balloon payment to make up the remaining value of the car. If not, you can hand the car back to the dealer with nothing more to pay. Be aware that you won’t own the car unless you opt to do so at the agreement’s termination.

Hire Purchase (HP)

Hire purchase car finance is similar to PCP, but a little more straightforward. You’ll typically make a deposit of around 10% with HP finance, then make fixed monthly payments according to a pre-determined schedule. Repayment terms can be relatively flexible, and there are often competitive interest rates with HP finance.

Like with PCP, you won’t own the vehicle until you’ve made the final repayment of your agreement, but you can opt to do so with a final balloon payment. After this, you can choose to part exchange, sell or keep the car. However, unlike PCP, you won’t usually face mileage caps, so HP finance may be preferable for you if you’re regularly making long journeys.

Personal Contract Hire (PCH)

PCH car finance is when you lease the car, which is why it’s also known as a car leasing agreement. You will never be its outright owner – you’re essentially hiring it until the end of your finance agreement. In this way, PCH differs from either HP or PCP. Though it’s technically not car finance, as you’re not borrowing money, you’ll still see this term frequently used when discussing car financing options.

With PCH, you’ll typically pay a non-returnable deposit as well as your monthly repayments. At the agreement’s end, you’ll hand the car back. If you’ve gone over the mileage cap or have made unreasonable vehicular wear and tear, you’ll pay a penalty fee.

Find the right car finance for you with My Car Credit

Shopping around for car finance can seem stressful, but it needn’t be. My Car Credit aims to make the process of securing your dream deal stress-free and streamlined. Contact our expert team today on enquiries@mycarcredit.co.uk to start your car finance journey.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.

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!

or call 01246 458 810

What Types of Finance Are Available for Used Cars?

Buying a car is likely to be one of the most significant purchases you make. Even for a second-hand model, a car represents a sizeable outlay. For this reason, many people choose to seek help in the shape of car financing. This can not only allow you to afford a better vehicle, but give you greater control of your finances, as well.

To meet this growing demand, there are now a number of different used car finance deals available. These include hire purchase, conditional sale, personal contract purchase, personal contract hire, personal loan and guarantor loan. The best way to finance a used car will vary from person to person, depending on their unique circumstances.

Used car finance deals

Our quick guide should give you a better idea of the options available and allow you to make an informed decision about whether to buy or finance your next vehicle purchase. Read on for a quick rundown of the types of used car finance on the market today.

Hire purchase (HP)

As one of the simplest types of car finance available, HP is also one of the most popular. Under this arrangement, you’ll pay an initial deposit, then hire the vehicle until you have paid for it in full. In addition, you’ll spread the remaining cost over a pre-agreed number of monthly instalments. There is no large payment at the end (as there is with PCP) but you may have some admin and transfer of rights fees to cover. Once you’ve paid the agreement off in full, the vehicle then becomes yours.

Conditional sale

A conditional sale arrangement is similar to HP. However, the monthly payments are usually higher but there are no fees to pay at the end. The ownership of the car will automatically transfer to you once the final loan amount has been paid.

Personal contract purchase (PCP)

PCP finance for used cars works on the same principles as HP. However, the difference is that a significant chunk of the total price of the car is held back for an optional final payment. That means that the monthly repayments can be a lot lower, making it easier to afford a newer or higher value vehicle.

At the end of a PCP finance for used cars deal, you will have a choice of three options. You can pay the final sum and own the car outright. Alternative, you can use any equity in the contract as a deposit for your next vehicle. Of course, you can simply walk away from the deal altogether. This can be a helpful option for those who aren’t sure if they would like to keep the car after the contract has run its course.

Personal contract hire (PCH)

PCH is essential a long-term leasing arrangement, whereby you pay an initial deposit and a series of monthly instalments thereafter. You must also adhere to a maximum annual mileage allowance. Bear in mind, you may face a hefty fee if you leave the contract before it has reached the pre-agreed expiry date.

Personal loan

A personal loan is similar to one you might obtain from a bank and will depend largely upon your credit score. The loan is not secured against the car itself. This means you can sell the car at any time as long as you continue to keep up with the repayments. You’ll also own the car outright from the get-go.

Guarantor loan

Aimed at those with a poor credit score, guarantor loans involve a third party who is liable for covering repayments that you yourself may not be able to. This is ideal for those who struggle to be approved for finance in general. What’s more, when adhered to responsibly, a guarantor loan can help to improve your credit rating. However, it is a big responsibility for both parties as both become liable should you not keep up with repayments.

Take stock of your options

The best way to finance a used car for you will depend greatly on your own personal situation. You’ll need to consider the type of car you wish to buy, whether you want to own it outright after the deal is concluded and what your credit history looks like. With that in mind, it’s a good idea to sit down and assess the options available to you. You’ll discover a vast resource on the internet to understand which type of finance is best for you.

In this respect, a car finance calculator can be a very helpful tool too. This will help you to understand how much you’ll be liable to pay throughout the course of a car financing contract. On the other hand, if you’d prefer to speak to a qualified professional and obtain advice about the best course of action for your situation, our team are always here to help.

Simply give us a call on 01246 458 810 or drop us an email at enquiries@mycarcredit.co.uk and we’ll get back to you at our earliest convenience. Your next dream car could be just a phone call away!

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

Financing a Second-Hand Car: 4 Options

How Much Car Finance Do I Qualify For?

How Much Does Car Finance Cost? Check Now!

Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.

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!

or call 01246 458 810

finance options Jan24 used cars

Is It Better to Finance or Buy a Used Car?

For most people, buying a car – even a used one – represents a substantial purchase in the context of their normal spending habits. That’s why car financing is becoming an increasingly popular option among the British public, with 91% of new car buyers using a finance deal to fund their purchase in 2019.

Of course, your available budget is likely to be the biggest factor in deciding whether to finance or buy a used car. However, it’s not the only consideration you should take into account, with advantages and disadvantages on both sides of the coin. In order to help you reach a decision, here’s a quick look at the pros and cons of both options.

The case for buying outright

If you have the capital available, paying for a car with cash can be the simplest and most straightforward method of acquiring a new motor. After having finalised the deal and transferred the funds, you can drive away with your new set of wheels. There are no monthly instalments to pay, no interest to worry about, no credit checks to pass and no mileage limits to stay under.

While buying a car is certainly the cheapest option available to you in terms of the amount you will pay for it, you should bear in mind that the value of your asset will undoubtedly depreciate over time. That means that buying a car outright is not an investment you can expect to see returns on. What’s more, the fact that you’re paying upfront means that your choice of car is likely to be restricted by your budget.

The case for car financing

On the other hand, taking advantage of the various types of car finance available on the market can give you a much larger budget, allowing you to access a wider range of vehicles. This can result in a better driving experience for the duration of the contract. In addition, you’ll have a more valuable asset at its conclusion that will last longer and fetch a higher price when it comes to moving it on.

Meanwhile, utilising a car finance deal allows you to manage your cashflow far better. You can even use the money that you save by not buying outright to invest in stocks and shares, lay down a mortgage or build up a nest egg. Meeting your fixed monthly repayments will also reflect favourably on your credit score. Even better, you can dispense with the hassle of finding a buyer if you choose an appropriate car finance package.

Is it better to finance or buy a used car?

Ultimately, the choice of whether to buy or finance a used car will depend upon your own financial situation, the type of car you wish to purchase and the things you value most in life. However, there are plenty of very attractive advantages of using car finance which simply aren’t available to those who buy outright.

If you’re interested in finding out more about the car finance options available to you, or to make an application with My Car Credit, why not give us a ring? You can reach us on 01246 458 810 or by sending an email to enquiries@mycarcredit.co.uk and we can take things from there. Get in touch today!

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

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Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.

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!

or call 01246 458 810

car buying finance options Jan24 used cars

Can I Buy a Car with a Credit Card?

Man handing over blue credit card to buy a car

Buying a car can be expensive. When you're in the market for a new or used vehicle, it's smart to shop around to ensure you're getting the right car at the best price. Part of this is considering whether to use car financing.

Unless you have enough cash stashed away to pay for your new ride, you’ll need a personal loan or car financing to complete the purchase.

If you’re feeling adventurous, you may be tempted to purchase the car through a credit card. But can you buy a new car with a credit card? Will you have to pay interest? They’re both good questions – here’s what you should know.

Can I buy a car with a credit card?

Since the Consumer Credit Act of 1974, there have been a lot of changes to the options consumers have when using a credit card. So, the simple answer is yes – you can purchase a card with a credit card. But before you do, you should find out if the dealership even offers that option.

A good early question is whether or not they accept credit cards. Most of the time, they won’t let you charge the entire purchase price of your car. Some dealers will have a limit on the value of an individual purchase, so check before you sign up.

The process of buying a car on a credit card is the same as buying anything else on a credit card. The full amount is charged to the card, and then you pay the credit card company back over time while paying interest on the outstanding amount.

Unlike some other loans, you won’t have to pay a set amount each month. This gives you more freedom to choose how much you pay back each month, as long as you meet the minimum monthly direct debit payments.

Are there downsides to buying a car on credit?

As mentioned previously, certain car dealerships may not accept credit cards as complete payment for a car purchase. If a dealership does accept credit card payments, be aware that there may be a surcharge, which is often an unexpected expense.

If you don’t qualify for a 0% rate with a credit card provider, keep in mind that the typical APR rate is 10-15%, which is higher than a typical bank loan. Since most 0% deals also only last a couple of years, it would be best to either pay off the card before the 0% offer ends or transfer the balance to another card. In this case, it can be difficult and time-consuming to keep on top of it to avoid unnecessary fees or unwanted credit card debt.

Top Tip: If APR is new to you, read our guide on car loan APR.

When should you consider buying a car with a credit card?

If you’re thinking about buying a new or used car with a 0% interest rate offer, then it can make sense to charge it to your credit card. Before you go this route, however, make sure you can afford to pay off your car quickly. If you don’t, you may end up paying standard APR rates – which are higher than the rates you’d receive from a good car financing company.

Secure, reliable car financing

While you can buy a car with a credit card, doing so isn’t always the right decision. With My Car Credit, securing reliable and affordable car financing has never been easier.

We’re a fully FCA-compliant credit card company, so our customers know exactly what they’re getting from us. We work with a range of motorists to find the right finance plan that suits their needs, from people with poor credit to those who are self-employed.

To get started on your tailored car financing, use our free car finance calculator and then apply to get a decision on car finance without impacting your credit profile. We look forward to working with you to help you pay for your next car.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

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Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£X

*for illustration purposes only

No impact on your credit score

Representative Example

Borrowing £7,500 at a representative APR of 13.9%, annual interest rate (fixed) 13.85%, 47 monthly payments of £201.38 followed by 1 payment of £211.38 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £2,176.240, total amount payable is £9,676.24.

My Car Credit is a credit broker and not a lender.

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!

or call 01246 458 810

car finance options credit card finance options Jan24

When it comes to car finance, there’s a lot of jargon and acronyms, and it’s easy to find yourself questioning what each finance agreement really means.

What does ‘finance’ mean when buying a car?

What are the different kinds of car finance?

Car loan

Personal Contract Purchase (PCP)

Hire Purchase (HP)

Personal Contract Hire (PCH)

Find the right car finance for you with My Car Credit

Rates from 9.9% APR. Representative APR 12.4%

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Used car finance deals

Take stock of your options

Rates from 9.9% APR. Representative APR 12.4%

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The case for buying outright

The case for car financing

Is it better to finance or buy a used car?

Rates from 9.9% APR. Representative APR 12.4%

Related articles

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Buying a car can be expensive. When you're in the market for a new or used vehicle, it's smart to shop around to ensure you're getting the right car at the best price. Part of this is considering whether to use car financing.

Can I buy a car with a credit card?

Are there downsides to buying a car on credit?

When should you consider buying a car with a credit card?

Secure, reliable car financing

Rates from 9.9% APR. Representative APR 12.4%

Related articles

Excellent

Good

Fair

Poor

Bad

Require more help?