Car Finance and loans
| What types of car
finance are there? |
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.
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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. |
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.
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Decide whether you want to own the car
or prefer a hire arrangement.
Make sure you can sensibly afford
repayments.
Compare interest rates for different
schemes offered.
Check if payment protection insurance is
provided in the event of loss of income.
Read and understand the terms and
conditions particularly about early termination.
Sign
agreements away from premises as it gives
you five days to change your mind.
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