Car Finance Explained

Like with all things in life, sometimes we need an upgrade in order to continue to enjoy the levels of quality we have become accustomed to.

When it comes to upgrading our car, there are a number of different approaches you can take.

If you are not in a position to buy a car outright, then one way to purchase new or used cars is through finance. This allows you to pay for your new vehicle in instalments, helping you to spread the cost and not have to part with a large sum in one go.

But the world of car finance has the potential to confuse many people, and can be complicated and difficult to navigate.

As a leading supplier of Peugeot, MG and Vauxhall cars, at Thurlow Nunn, we understand what it is our customers need and want. And many people who are tempted by the thought of buying through car finance want to know more about this way of purchasing a vehicle.

In this blog, we have put together a guide to ensure the various types of car finance are explained and are clear to you.

Read on and develop your understanding of the different types of car finance in the UK, helping you get an idea of which may suit you best.

Understanding Car Finance

Car finance is the term given to the various options customers have in order to purchase a new or used vehicle, beyond paying the total cost upfront.

If you choose a car finance plan, you will typically need to pay an initial deposit that is non-refundable. You will then have to pay a series of regular instalments throughout the course of the car finance agreement.

Essentially, you as a customer borrow money from a lender which covers the cost of the car, and then you pay the lender back the money you owe, with interest, over a specific period of time to cover the cost of the vehicle.

In some respects, this makes car finance similar to a mortgage or other types of loan. But with car finance, there are a number of different types of finance available. The suitability of these will depend on your own personal and financial circumstances.

PCP Car Finance Explained

One of the most common forms of car finance is personal contract purchase (PCP).

PCP car finance sees you pay an initial deposit, followed by a series of monthly instalments, and then an optional final payment.

PCP is a good option if you are thinking of getting another new car in a few years time and are unsure as to how long you will want this vehicle. It is also a good option if you want to make lower monthly payments on a more expensive vehicle.

PCP car finance deals typically last for between 2 and 4 years, and when your contract reaches its end, you will need to ensure that the vehicle is still in a good condition.

When this time arrives, you as the customer have a few options. You can hand the car back to the leasing company, at which point you will need to cover any extra costs associated with additional mileage or damage. You can also potentially change this car for another, or you can buy the car outright.

HP Car Finance Explained

Hire purchase (HP) car finance deals are similar to PCP deals but with some important differences.

You still pay an initial deposit and make monthly payments, but there is not a large final payment to contend with.

Instead, the general cost of monthly payments will be higher. If you are happy to pay more each month, safe in the knowledge that a large final payment is not coming your way, then HP car finance deals may be a good fit for you.

APR Car Finance Explained

If you have taken out other loans in the past or used credit cards, then APR may not be completely unfamiliar to you.

APR can be applied to car finance, with this acronym standing for ‘annual percentage rate’. APR in a nutshell is the total cost of your borrowing in the space of one year. It combines the interest rate with any additional costs of a loan. This is then expressed as a percentage, giving you a true reflection of what this car finance loan is going to cost you.

APR is very useful for anybody wanting to budget their money accordingly. It also makes it easier to compare options on the market, giving you a definitive idea of what choice gives you the best value.

Personal Loan Car Financing Explained

Another way of purchasing a car is to take out a personal loan to cover the cost. You may want to buy the vehicle outright, and a personal loan can enable this. Of course, the money needs to be paid back to the lender, be they a bank, a building society, a supermarket or another type of lender.

Many lenders today have dedicated ‘car loans’ available designed for this purpose. This is an alternative way of securing finance for your car buying, and if you have had a good experience with a lender previously, you may prefer to take this approach.

Things to consider when securing car finance

It is vital that you understand what you are committing to when signing up for a car finance deal, and that you have budgeted accordingly.

You should also look into your credit score, as the better this is, the higher the likelihood you will be able to secure a suitable car finance deal.

Factors such as term length and what you can realistically afford should be considered, while it’s also important to be reflective on how much and how long you are going to need your leased vehicle for.

Also consider your long-term plans when making a decision around car finance. If you have specific plans in the future that may affect your decision, then be sure to be considerate of all circumstances and possibilities.

Additionally, be aware of how leasing works in practice. When leasing a car, you are not the owner of it, and you must keep it in a good condition ahead of returning it to the leasing company.

You will remain responsible for servicing the vehicle during your stewardship of it, and you will also likely have an agreed mileage limit. This must be adhered to or you may face repercussions.

Get your house in order

When applying for car finance, there are a number of elements you will need to have in order to secure the deal you want.

You will need a form of ID and a proof of address, as well as employment details and finance and banking details. You will also need to prove your credit score in some instances.

Once the lease is agreed, you will need proof of car insurance.

Be sure to check with the car leasing company if there is anything further you need to show in order to secure the lease you want.

Find the car and the deal that works best for you

Leasing a car through finance is a big commitment and not one that should be taken lightly. It is vital you consider all elements linked to car finance, do the suitable level of research, and make a decision that is the right one for you both now and in the future.

At Thurlow Nunn, we have a superb range of new and used cars from Vauxhall, MG and Peugeot, available on finance and ready to drive away.

Take a look through our website and find out more about the cars we stock, and the financing options available to you.

If you have any questions, simply contact our team. We will be very happy to help!