A Guide To Used Car Finance

| October 14, 2013 | 0 Comments

Used Car Finance

A car is a huge investment – you should always think carefully about the best way to fund this important purchase and chose a method that’s practical and affordable according to your own personal circumstances.

If you’re not fortunate enough to have the cash to buy a used car outright (and few of us are!), you’ll be able to take advantage of a number of finance options, many of which your dealership can arrange for you to ensure the process is as easy as possible. But which package is for you?

Here’s a guide to the most popular ways to finance a used car purchase, and a rundown of the pros and cons of each.

Hire Purchase

The most popular type of car finance is hire purchase as it’s easy to budget for and flexible too. As the name suggests, you’re essentially ‘hiring’ the car via regular monthly payments; once you come to the end of the agreement, the car is yours.

Many car dealers offer a free online used car finance calculator where you can input details including your deposit amount, monthly budget and the time period you’d like to spread repayments across to find out how far your budget will go on a hire purchase deal.

Pros: Simple to arrange, requires minimal deposit, fixed interest rate, flexible terms

Cons: You don’t own the car until the final payment is made so can’t make changes to the car without the lender’s permission, could lose the car if you miss a payment

Personal Contract Purchase (PCP)

More and more car buyers are choosing PCP nowadays, which is particularly suited to those who have a deposit of up to 10%. The monthly repayments are lower than with a hire purchase agreement; at the end of the agreement, you can either make the ‘balloon’ payment to keep the car, or, if it turns out the car is worth less than the ‘balloon’ payment, you can simply hand it back.

Pros: Low repayment costs, no need to worry about depreciation

Cons: ‘Balloon’ payment can be costly, you might have to pay for damage or excessive mileage if you decide not to keep the car

Secured Loan / Mortgage Extension

Another option is to take out a loan against an asset that you already own, usually your home. This is a straightforward way of borrowing as you’ll only have to deal with your existing lender.

Pros: Quick and easy to arrange, means you’ll own the car immediately

Cons: You’ll put your home at risk if you miss a payment, often comes with high rate of interest attached

Unsecured Personal Loan

You can often set up a loan like this via your car dealer. Request a SECCI or PCCI, a structured quote that allows you to easily compare different products, to make sure you get the right deal for you.

Pros: Doesn’t put any of your assets at risk

Cons: Usually need a good credit score, can take a while for funds to become available

 … And don’t forget that part exchange can reduce your costs

If you already own a car then you might be able to use the value to reduce the cost of your next one. If you have outstanding finance on your old car, your car dealership like The Car People will be able to advise you on the best course of action.

Category: Car Loan

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