Finance Agreement: Car Finance Jargon Busters
According to the latest figures from the Finance and Leasing Association, over 2.2 million customers took out car finance in 2021-2022.
However, despite how popular it is, you're sure to run across several terms you've never heard before.
Before you can drive home in your dream vehicle, you’ll need to sign a financial agreement with the lender. Scary!
If you’re wondering what a finance agreement is, don’t worry, we’re here to help.
In this useful guide, we’ll reveal everything you need to know so you understand exactly what you’re agreeing to.
What is a Car Finance Agreement?
A car finance agreement is a legal document or contract provided by the lender that sets out the terms and conditions of the loan.
These agreements can be notoriously long and provided in small print, making it difficult to understand them.
The agreement should cover everything that you need to know. This includes what to do if you cannot afford the repayments, and what your cancellation rights are.
If in doubt, choose a lender that offers full transparency. Here at Carmoola for example, our terms and conditions are open, transparent, and easy to understand.
Common Questions About Car Finance Agreement
Your car finance agreement is a contract between you and the lender. In it, you’ll find all the details of your loan such as:
- The total amount repayable
- Interest rate
- Any other fees
- Your monthly repayment amount
These are just some of the details that are included in your loan contract. However, sometimes they’re written in a way that’s not easily understandable.
To help you make sense of your car finance agreement, below we’ll answer some of the most common questions customers have.
Can I Cancel a Car Finance Agreement?
After signing a car finance contract there could be several reasons you need to cancel it. The good news is, there is a "cooling off period" of 14 days.
If you change your mind at any point during these 14 days, you can cancel the agreement without facing any penalties.
Beyond the cooling off period, if you’ve paid half of what you owe, you can cancel your car loan.
You also have the option to pay off half of your total loan earlier and give the vehicle back.
How Can I Get Out of a Car Finance Agreement?
Depending on how much you've paid to date, there are two ways to cancel your vehicle finance deal early.
The most popular is voluntary cancellation or early settlement. You can opt to voluntarily terminate the contract if you've paid 50% or more of the total amount repayable.
Here’s what you need to know about voluntary termination:
- If you are struggling to keep up with your monthly payments, voluntary termination can be a viable alternative for you.
- You will not receive a refund if you have paid more than 50% and voluntarily end the agreement.
- Lenders generally require written notification of your voluntary termination.
- You must either return the car or ask to have it picked up. There will usually be a charge for this.
- You will be responsible for repairs if the vehicle is damaged outside the fair wear and tear criteria.
- You will be charged an excess mileage fee if you exceed your mileage agreement.
- Even if you haven't paid half of the total cost, you can get out of the car loan by paying it off early.
At Carmoola, we offer a fast, easy, and affordable refinance service. We make it easy to switch and save money on your finance deal.
Can You Change the Name on a Car Finance Agreement?
The short answer is no, you can't simply swap names on a car finance deal.
Each loan is customised to the borrower's specific needs and financial situation. The finance has been provided based on the customer’s credit rating.
As everyone's needs and financial status are different, the finance can't just be transferred over.
Can I Have Two Car Finance Agreements?
If you need more than one car and you can't afford to buy one outright, you may be able to get two car finance agreements.
Provided you can show you can afford them, many lenders are happy to provide more than one finance agreement.
Improve Your Chances of Getting Car Finance
You can improve your chances of getting a second car finance deal by putting down a substantial deposit before you submit your application.
A higher deposit lowers your monthly repayments, making the finance more affordable.
You should also make sure you don’t apply for car finance from multiple lenders.
Each lender conducts a hard search on your credit report that will be recorded on your file. Too many applications at once doesn’t look good.
If you are unsure about the likelihood of being accepted, it might be wise to check your own credit score before you start applying.
Taking steps to improve your score if it is low will increase your chances of getting accepted for the finance you need.
Our last word of advice is to always check and read the small print. This ensures you are fully informed of your rights and obligations - good luck! 🍀
Read more about car finance agreements:
FAQs About Car Finance Agreements:
What Are the Different Types of Car Finance Agreements?
Common types include Hire Purchase (HP), Personal Contract Purchase (PCP), and Personal Contract Hire (PCH). Each has its own terms and benefits.
What is the Best Car Finance Option?
The best option depends on your financial situation and preferences. HP is ideal if you want to own the car outright, while PCP offers flexibility at the end of the term. PCH is like a long-term rental.
What Type of Agreement Are Most Car Finance Products?
Most car finance products, such as HP and PCP, fall under the category of secured loans, where the car serves as collateral until the loan is repaid.