What You Need to Know About Getting the Best Car Finance Deal
Do you need a new vehicle but haven’t a clue where or how to find the best car finance deals? Don’t worry. We’ve created a short guide to help you get started.
Although we’d rather this pandemic ended, one small consolation is that personal interest rates are a lot lower. Some of the best car finance companies have relaxed their assessment criteria, too so there are lots of great deals to be made out there.
Read on to find out:
- What personal loans are and how they work
- What financing options lenders offer
- Where you can find the best rates
- How to compare car finance companies
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How do personal loans work?
Personal loans let you borrow an agreed sum from a lender, then pay it back in instalments over an agreed period. The finance company makes its money by adding a fee built into your repayments.
Before comparing, it’s important to understand the financing options lenders offer. That way, you’ll be more prepared – and can ask the right questions.
What are your financing options?
Lenders normally offer a choice of payment options. Unfortunately, there’s no ‘right’ option – and so it’s a case of finding the one that’s right for you. Some of the most common ways you can finance a car purchase are:
Take out a personal loan
A credit card might not have a big enough limit (likely if you’re buying new). By taking out a personal loan, you’ll be able to borrow a higher amount.
Pros: You’ll own the car as soon as your lender transfers the money into your bank account.
Cons: The interest rate will rise fast – so you’ll pay more if you don’t clear your loan quickly.
Don’t borrow – use your savings instead
There’s no hard-and-fast rule that says you must shop for car finance deals. If you have enough money set aside in savings, dip into them instead. Just think you won’t be in debt or need to pay interest.
Pros: You only pay the cost of the vehicle, with no added extras that would otherwise hurt your bank account.
Cons: The value of a brand-new car depreciates rapidly (roughly 40% in year one).
A 0% credit card could work out cheaper
Not all car companies accept credit cards. But if yours does, this could be a cost-effective way to finance your new vehicle. Paying it off quickly is a must if you want to avoid a higher interest rate after your 0% offer expires.
Pros: You’ll own the vehicle from the beginning, giving you peace of mind.
Cons: The interest rate will rise steeply, so you’ll need to clear your debt fast.
What about hire purchase (HP) agreements?
Car finance deals also include hire purchase agreements (also known as HP agreements) structured just like loans – i.e., you borrow money over a set period until your debt is cleared.
Because the loan is unsecured, you’ll need to raise an asset like your home as security – so your lender can recover its money if the debt goes unpaid.
Pros: It’s much easier to get approval for a hire purchase agreement.
Cons: A deposit is required – so you’ll need to put down some money.
What about a personal contract purchase (PCP)?
With a PCP (i) you won’t have to pay off the full loan amount; (ii) but you won’t own the vehicle (although you can choose to buy it at the end of the loan period). Otherwise, you continue to pay in instalments until your agreement expires.
Pros: You can purchase the vehicle if you want to – and could get money back if it’s worth more than the balloon payment you made.
Cons: There could be mileage or damage penalties if you decide to return the car.
What are the best car finance companies?
Comparing and doing your research is important if you want to get a great deal. But which lenders offer the best rates? This will depend on how much you want to borrow, for how long, and other factors.
Here are five of the best places to find car finance deals:
- Zuto – fast, easy and transparent
- CarMoney – competitive rates, zero deposits available
- MoneyBarn – can source deals for self-employed and those building their credit score
- GoCompare – easy to use and one of the large aggregators of finance products
- Compare the Market – good comparison of products, perks available
Not all companies are willing to lend above the £15,000 threshold – so it’s important to shop around for car finance deals that meet your criteria. Using a comparison site like the ones listed above is the fastest and easiest way to review multiple lenders side by side.
Your essential checklist
When comparing used cars, don’t forget to:
- Find out whether any early repayment penalties or other charges apply
- Look at customers reviews of lenders on sites like Trustpilot
- Run a check on the vehicle first to find out:
- How many previous owners there have been
- Whether the plates have been changed
- It has a fully checkable MOT history
- If it’s an import or export
When interacting with car finance companies, the more you know about the car you’re buying, the more wiggle room you’ll have to negotiate. Why not run a check for free now – you don’t even need the car’s registration number.
Frequently Asked Questions
The most common types of car finance agreement are hire purchase (HP), personal contract purchase (PCP), lease purchase or personal loan, though other options are available also.
Bad credit history can make it more difficult to obtain car finance but it certainly isn’t impossible. There are car finance providers that do provide car finance to people with bad credit history.
The cheapest option to buy a car is using your own savings while personal loans are typically the cheapest way to borrow to buy a car.