How does car finance work?

The way car finance works is that you borrow money from a lender to cover the cost of your new or used car and then pay it back in affordable monthly repayments. There are several types of loan available and car finance is the catch-all term used to describe them.

You’ll need to know how much you want to borrow and how long you want to borrow it for (the loan term) to find the car finance deal that’s right for you. You can also put down a deposit to reduce the total loan amount. If your loan is approved, you’ll then pay it back in monthly instalments, plus interest, for the duration of the loan term, which typically lasts between one and five years. Depending on the deal you choose, your finance might be secured against the car.

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Types of car finance

There are several types of car finance to choose from but the most common are hire purchase (HP), personal contract purchase (PCP), and personal car loans.

Hire Purchase

With hire purchase, the loan is secured against the car and you won’t own it until you’ve reached the end of your agreement and paid the ‘Option to Purchase’ fee. You might need to put down a deposit but it’s unlikely that you’ll have to agree to any mileage restrictions.

Personal Contract Purchase

Personal contract purchase loans are also secured against the vehicle, but you don’t automatically own the car when the loan term ends. Instead, you can choose to give it back, use any positive equity as a deposit in a new deal, or buy the car by paying the balloon payment. Monthly payments can be lower than with HP car finance, but you may have to agree to annual mileage limits.

Personal Car Loan

With a personal car loan, you typically receive the full amount in one go so that you can buy the car straightaway. You’ll then pay back the loan in fixed monthly instalments. Monthly payments can be higher than other forms of finance, but you won’t have to face any restrictions and can sell the car before the end of your loan term if you wish.

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Choosing the best financing option for you

Deciding on the best car finance option for you will depend on your individual circumstances, the car you want to buy, and how you want to use it.

With with HP finance, you’ll own the car at the end of your loan term, but your monthly repayments might be higher than other options and you won’t be able to sell or change the car during your agreement. If you opt for a personal loan, you can do whatever you like with your new car, but your monthly payments might be higher. PCP car finance often offers the lowest monthly repayments, but you could have to agree to mileage restrictions, and you won’t automatically own the car at the end of the loan term.

No matter which financing option you choose, at Aze vehicle solutions, we’ll always look to find you the best deal from our panel of lenders.

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Car finance with bad credit

At Aze Vehicle Solutions, we don’t believe that having bad credit should stop you from finding car finance. We work with a panel of lenders including some who specialise in helping people with poor credit secure a loan. It can be more difficult to find a car loan with bad credit but it’s not impossible, even if you’ve been refused elsewhere. In fact, successfully keeping up with car finance repayments could even help to improve your credit score over time. Get a no obligation quote - with no impact on your credit score - to find out more leave us your contact details below and we will get in touch.

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