Finance is a way for you to buy a car without needing to pay the whole amount upfront. There are two main car finance options available:
We’re going to explain what each of these finance options means, the benefits and the potential drawbacks here.
Hire Purchase is where you ‘hire’ the vehicle from the finance company, making regular monthly payments. You have the option of paying a deposit and then borrow the remaining balance for the car over a set period. You’ll also pay interest on the balance.
The repayments will usually last 12, 24, 36, 48 or 60 months and at the end of the agreement, you will have paid for the whole cost of the vehicle – including any interest and any fees which were agreed. You will then own the vehicle at the end – this is the biggest difference between the two finance options.
Benefits of Hire Purchase:
HP is good if:
If you choose to finance a car using a Personal Contract Plan, (PCP), you’re only paying for part of the total amount due.
You may need to provide a deposit (usually10% of the vehicle’s value). You’ll then borrow a lot less than you would using Hire Purchase. This is because you only pay the amount the finance company predicts the car will lose over the term (the depreciation). You then have the choice to return the vehicle at the end of the agreement, or you can pay a lump sum (known as a balloon payment) to buy the vehicle. You may be able trade the car in for a different model at the end of the term.
Benefits of PCP:
No need to worry about depreciation.
Lower monthly instalments for a better car.
PCP is good if:
You like to change your car frequently.
Are not bothered about owning a car outright.
Car finance as a concept is simple. You pay regular monthly payments instead of buying a car outright, spreading the cost over an agreed term, including interest. There are some essential details regarding car finance you should consider before applying.
You don’t own the vehicle until either the final payment – or a balloon payment – has been made. This is one of the reasons why you won’t be able to sell a vehicle on finance.
The car is owned by the finance company throughout the term, and you cover the total cost with monthly repayments.
At the end of an agreement, you’ll be able to buy your car outright from the lender (PCP), or if it’s on HP, you’ll own it as soon as the last payment is made.
With PCP, you have the option of handing the car back and starting all over again with another agreement. Alternatively, once your HP finance agreement is finished, you could sell that vehicle and use the money as a deposit for your next car.
Zuto and its panel of lenders are here to help people with all levels of credit history. Before you apply for any finance you should check your credit score to see how you could boost it. You can then apply for car finance and Zuto will do a soft credit check.
This doesn’t affect your credit score but can give you an idea about the options available to you. If you get accepted, a hard credit score will then be done. A hard credit check will show on your credit report for six years. All car finance companies will perform a hard credit check before making a decision.
There are many reasons why people choose to use finance for their vehicle. Some of the biggest draws to using finance include:
If you’re wanting to upgrade your car, but you’re unsure about whether HP or PCP finance is right for you, there are some other options available.
Personal loans are where you borrow a lump sum of money from a finance provider to cover the whole cost of your vehicle.
You will then make regular loan repayments to the finance company over an agreed term. Bear in mind that even if you sell the vehicle, you will still be responsible for making the loan repayments.
You will typically need a good credit score to be approved for a personal loan and you don't get the same level of protection as you do with other car finance plans with the loan not secured against the vehicle. Read more on your consumer protection here.
Benefits of a personal loan
A personal loan is good if:
A fixed-sum loan provides you with a fixed repayment plan and a fixed rate of interest and the car belongs to you from the start of the loan. However, unlike a personal loan, you cannot sell or part with the vehicle until the finance is settled.
Unlike a traditional personal loan, you have lender support should things go wrong with the vehicle within the first six months after purchase, because the car is written into the finance agreement as an asset.
Benefits of fixed sum loans:
A fixed sum loan is good if:
With a conditional sale arrangement, you commit to buying the car from the start. This means the vehicle is automatically yours once you’ve paid the final instalment of the finance plan.
Simply choose the car and Zuto will arrange for the payment of the vehicle. You’ll then hire the car from the finance company, taking responsibility for it and making monthly payments until you have paid the total amount owed.
Benefits of a conditional sale
Conditional Sale is good if:
Contact Zuto today for guidance on finding the best car finance options for you.
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