Is Getting Car Finance A Good Way To Buy A Car?
Excited to be buying your dream car? 😃 But getting cash for car purchases can be a daunting task. The majority of people in the UK need a car for their daily commute, and therefore, require a reliable vehicle. But this can come at a cost. To be able to spread the cost in an affordable way, Car finance options can be the answer.
Even with large sums of cash saved up, buying a car can be a huge burden financially. For both first-time and repeat buyers, car finance is a great idea, and most often your best option.
Reasons Why Car Finance Is A Good Way To Buy A Car
There Are Different Plans
Before settling on a finance agreement, it's always advisable to compare the UK's many different car finance deals. When you approach a dealership, they offer three different types of financing depending on your needs. You can choose to either get a hire purchase (HP), a personal contract purchase (PCP), or a leasing plan.
With this plan, you take a loan against the car from your dealership. You will make a down payment of 10% on the loan's value and make monthly contributions over a set time. Once you finish making all the payments, you own the car.
Personal Contract Purchase (PCP)
This dealership financing plan allows you to make a deposit just like the hire purchase option. You are expected to make monthly payments, with a larger "balloon" payment at the end of the contract. Once the contract is over, you can return the car, trade it up for another, or make the payment and keep it.
Leasing or Personal Contract Hire (PCH)
This plan works like renting. The dealer rents the car to you for a specific amount of time. Once the contract expires, you return the vehicle to the owner. You will pay a deposit and a fixed monthly charge, which includes service and maintenance fees.
There Is Flexibility
Most UK residents don't have access to lump-sum amounts of money to purchase a car with one payment. Besides, it's also a challenge to get a bank loan if you plan to finance a vehicle and have a bad credit history.
Car finance makes this process more straightforward. You can pay a deposit and spread out the payments over several months, up to 5 years or even more. Making these small manageable payments makes the car purchase very affordable.
You Could Improve Your Credit Score
Most people shopping for a new car in the UK will a one-time question is it better to get a personal loan or car finance? When it comes to improving your credit score, getting car finance might be a better idea.
Once you sign up for a hire purchase or the personal contract purchase plan, your credit rating improves as you make your monthly payments. This works as long as you don't miss any payments or default on a loan. It demonstrates your ability to pay off debt and manage credit.
With this positive outlook, you become more attractive and eligible for future credit such as mortgages. Furthermore, you can now approach a bank in the future for a personal loan for any other financial project you have. Car finance helps you build your credibility, especially if you are new to the credit market.
You Can Get A Better Car
Buying a car with cash or a personal loan limits you to a specific budget and car type. However, with car finance options such as hire purchase or PCP, you can go for a better vehicle model with superior comfort and technology features.
With car finance, you spread out payments monthly; therefore, you have more time to pay for a more expensive auto. For PCP agreements, at the end of the contract term, you can either pay off the loan or trade in for another car. This plan allows you to get another model if that's your game plan.
The same applies to leasing. You can stay with a car for two or three years and return it and change to a better model. If you like to change cars often and drive the latest models, it's better to finance via a dealership than a bank loan.
You Don't Need Extra Collateral
When comparing car deals in the UK, you have to note the ones that need you to have security. Dealership financing plans such as HP and PCP don't require you to have any extra collateral attached to the car.
The car acts as security in case you default on the loan payments. Therefore, unlike other financing forms, if you can't make the payments, you only lose the car and no other assets. To avoid repossession, it's best to keep up with all the fixed payments required in the contract.
You Can Budget Better
Car finance plans have fixed monthly payments. When signing the contract, it clearly states how much money you need to pay each month. With this, you can plan your finances properly without much hassle.
You have a clear idea of your financial obligation each month and plan for your savings and other household expenses.
When signing up, you have to pay a down payment, usually 10% or more, on the loan's value. Depending on your financial capability, you can plan to pay a larger deposit and have lower monthly payments later. With this understanding, you can negotiate for better deals at the dealership.
Your car financing choice significantly depends on your financial situation. Buying a car using a personal loan could limit you, especially on the car options. It's also tough to get one if your credit rating is poor. To avoid these types of challenges, car finance is a good idea and the better option. Car dealerships provide lots of incentives and discounts for buyers and are a convenient way to improve your credit score.
If you are shopping for the best finance deals in the market, try Carmoola. With a simple and efficient online application process, you can find out if you are eligible for finance. Once approved you could be driving your dream car in no time!