A Beginner's Guide to Car Finance
What is car finance?
Car finance is a contractual agreement between an individual and a lender, where the individual applies for a loan to purchase the car of their choice.
If the lender approves the application, the individual will be required to make monthly repayments until the car’s value and any interest are paid off. The length of the contract can range from 12 to 60 months. In this Corner Park Garages car finance guide, we will cover all the need-to-know facts and figures to get you started on your journey.
What are the types of car finance?
There isn’t a one size fits all option regarding car finance. Instead, there are several car finance options available, the two more common ones are hire purchase (HP) and personal contract purchase (PCP) finance.
What is HP finance?
HP finance is the most suitable option if you intend to own the car once the contract ends. Your payments will be more expensive in comparison because of this, and you’ll only be making payments that total the car’s value plus interest.
What is PCP finance?
PCP finance, on the other hand, is more suited to individuals who want to change their car every few years.
With this finance option, you’re expected to return the vehicle in a similar condition as when you first received it once the contract ends. Payments can include maintenance cover and road tax as well as the vehicle’s value and interest to make managing payments easier.
How does car finance work?
Starting with the application, you’ll be required to submit basic information about yourself including your marital status, employment status and history as well as bank details and ID.
You’ll also be expected to pay a deposit on the car that’s at least 10% of its overall value.
The lender will take into account those details as well as your current credit score and credit history.
They will need to assess the risk and likelihood that you will be able to make payments for the duration of the contract, and depending on your credit score can determine how much interest you’re expected to pay.
Can you end a car finance contract early?
There is a way to end a car finance contract early. To be able to do this, you will need to have paid 50% of the total finance amount, including the car’s value, interest and other additional costs.
With HP finance you don’t have to worry about any additional costs, so you’re more likely to pay 50% of the total finance amount faster than with a PCP finance contract.
You can contact the finance company and ask for the outstanding amount, then arrange to pay it early, after which you can return it or have ownership transferred over to you.
Why would you end a car finance contract early?
There are several reasons why you may want to end a car finance contract early, including
You don’t think that you’ll be able to maintain payments for the remainder of the contract
The car has positive equity, meaning the value is higher than the remaining payment amount
You no longer need the car
You want to reduce your financial outgoings
Pros and cons of car finance
Pros
Spread out the cost of the vehicle over an amount of time that suits you
You’ll be able to drive relatively newer models more regularly
The fixed monthly payments can make adding a car into your budget easier
It can help to improve your credit score
Cons
Falling behind on payments means that you risk losing the car
Certain finance options like PCP can charge you if you exceed agreed mileage limits
Since newer vehicles tend to be financed, this could result in higher insurance payments
Having to pay high-interest rates depending on your credit score
Where can you find car finance deals in Wales?
At Corner Park Garages, we’re proud to be able to offer drivers in Wales, car finance deals in Swansea, Cardiff and other locations!
Why apply for used car finance in Cardiff and Swansea with Corner Park Garages?
We can offer both PCP and HP finance quotes so you can choose the car finance option that best suits you. As a credit broker, we will introduce your application to the lender which can improve the chances of your finance application being approved.
We also have over 300 used cars for sale in Cardiff and Swansea, including popular makes like BMW, Volkswagen and Audi. So we’re confident that you’ll be able to find and finance your next car with us.
If you’re ready to start your used car finance application in Swansea, you can complete our online application!
Learn More | PCP Vs HP: Which Car Finance Is Right For Me?