One of the biggest expenses in life is purchasing a new car. Whether you are buying a brand new vehicle straight off the forecourt, or searching online to find the best deal available, buying a new car is an important decision. So when it comes to funding your new car, what are your plans? Part exchange and cash? Take out a personal loan? One of the most overlooked ways to buy a new car is by finding a car finance deal. Not many consumers know how car finance works and could be missing out on their ideal car buying option. So is car finance the right car buying option for you?
Car Finance Explained
Choosing car finance to fund your new car purchase allows you to spread the cost of the vehicle across a fixed amount of monthly payments, normally between 24 and 48 months. As well as paying off the cost of the car, you will pay interest at a fixed rate of APR. So why should you choose car finance if you will end up paying more than the cost of the car?
Well, one of the most attractive aspects of car finance is that it will allow you to buy a more expensive car sooner. It can be difficult to save enough money to buy a decent car outright. Modern cars come with a wide range of appealing accessories – entertainment and safety features. If you have to pay the full amount for a car at the start, you might not be able to afford a more recently registered car. Older cars can also suffer from poor reliability, as well as having less knowledge of how the car was cared for by the previous owner.
Recent changes by the FCA (Financial Conduct Authority) mean that car finance providers have to give greater emphasis on being open and transparent with customers, ensuring that every customer has all the information they need to make the right choice based on their own needs. There is more protection than ever for someone taking out a car finance package.
Types of Car Finance package
There are two main types of car finance package available – Hire Purchase (or HP) and Personal Contract Purchase (or PCP).
Hire Purchase is effectively a rental agreement that ends with you owning the car. Normally you pay a small deposit up front, around 10% of the car’s value, and spread the rest of the cost across your monthly payments. Hire Purchase agreements come with fixed interest rates and a flexible repayment term, so you can decide how long you want to spread the cost for.
Personal Contract Purchase is the ideal option for someone who likes to change their car often. At the end of a PCP agreement, you are presented with three options. 1) Pay off the final “balloon payment” and own the car, 2) hand the car back to the dealer, or 3) refinance the remaining payment or use it as a part exchange on a new agreement. PCP is only available to cars that will be less than 8 years old at the end of the agreement. The “balloon payment” means that monthly payments are normally smaller, making it a cheaper package should you not want to keep the car at the end of the agreement.
Finding the best car finance deal
So how do you ensure you get the best deal on your car finance package? For most goods and services, you normally want to shop around to find the best deal. But with car finance, this is more difficult. Why? Applying for car finance usually requires a company to carry out a full credit search on your file. This can be disastrous if you want to see what a number of companies can offer, as each of these full credit searches is recorded on your file. Having a large number of searches on your file can be a warning sign to lenders and affect your chances of being accepted for a loan, credit card or finance package in the future.
There are a number of car finance brokers out there that can compare car finance deals for you, but again most of these companies carry out a full credit search with every application. To get the best deal without affecting your credit rating, you will want to find a car finance broker that carries out a soft credit search, such as what we do at Creditplus car finance. Soft credit searches have no affect on your credit file and so allows you to compare car finance options without risking your file.
Once you have found a broker, you will want to get an idea of how much your car finance deal will cost. To do this, you can use an online tool such as a car finance calculator, such as the one on the Creditplus website. For the most accurate reading, you will need to know what your credit rating is. You can use a website such as Noddle or Experian to work this out.
Simply put in your credit rating, how much you want to borrow, how much deposit you have, and how long you want your finance agreement to last, and you will be given an idea of what your car finance package will cost. You can also switch between a PCP and HP agreement to see what the difference would be.
Now that you have all the information you need, you can proceed with confidence and take advantage of the benefits of car finance, secure in the knowledge that you can find the best deal for you.
Creditplus is one of the UK’s leading car finance comparison services. Having been operating for 12 years, ethical lending and putting our customers first has led to us being the UK’s most trusted car finance provider. Let us find, fund and deliver your new car with our simple and straightforward car finance service.