Car Finance and loans

What types of car finance are there for cars, vans and motorhome?

There are two main ways of borrowing to purchase a car:

Car Loan – money is loaned for outright purchase that is paid back over a period including interest. The car is the property of the purchaser on buying. Banks, building societies, finance houses and credit card companies are usual sources for loans.

Hire Purchase or Conditional Sale – similar to a loan but the car remains the property of the lender until a final payment is made. Car dealers will also be able to offer such finance facilities.

Personal Contracts

Contract and Lease purchase finance arrangements have become available recently for the private buyer. The main schemes are:

Personal Contract Plan (PCP) – if you intend to change your car at the end of the plan then PCPs are worth considering. Deposit and repayments are set to ensure that the value of the car will be worth more at the end of the plan than the final payment. Deposits will be above 10% but monthly payments relatively low. You may hand the car back at the end of the period or make a final payment which should be less than the value of the car.

Personal Contact Hire (PCH) – a no worries but expensive way to finance a car. Deposits will be low and repayments relatively high. Maintenance will be covered and so there are no extra motoring costs apart from insurance. PCHs are more suited to the self-employed or business user.

Lease Purchase – similar to hire purchase with a defined final or ‘balloon’ payment at the end of the period allowing the optional owning of the car at the end of the plan. Deposits can be varied but repayments relatively high depending on the final ‘balloon payment’ agreed.

Credit Conditions

The key factors determining what your regular payments will be are:

Interest rate – normally quoted as the Annual Percentage Rate (APR)

Repayment Period – terms of loans for cars will normally be in the range of one to three years or can be as high as five for a new car.

Deposits – can be very low for some schemes such as contract hire or will often be determined by value current be traded in or sold privately.

Credit checks will be made by lending organisations and you will be asked for personal details including income, loans, bank and credit card details.

Signing Credit Agreements – there is a legal five-day period for cancelling an agreement following signature. Note that this does NOT apply if signed on the issuing premises.

Terminating credit agreements – there may be penalties for early termination of a credit arrangement and so read the small print.

Advice

  1. Decide whether you want to own the car or prefer a hire arrangement.
  2. Make sure you can sensibly afford repayments.
  3. Compare interest rates for different schemes offered.
  4. Check if payment protection insurance is provided in the event of loss of income.
  5. Read and understand the terms and conditions particularly about early termination.
  6. Sign agreements away from premises as it gives you five days to change your mind.

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