Best Car Loan Options In United Kingdom

Next to buying a home, buying a car is the most expensive purchase most people will make. Just as with many other expensive purchases, people look for a way to help them finance getting a new car. There are several options to do this in the UK.
Next to buying a home, buying a car is the most expensive purchase most people will make. Just as with many other expensive purchases, people look for a way to help them finance getting a new car. There are several options to do this in the UK.

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There are important considerations to keep in mind when exploring and then choosing a car finance option. You will need to pay interest, so you should fully understand how much that will cost you before you sign an agreement. The general rule of thumb is the lower your down payment/deposit or the longer your time to pay the loan off, the more overall interest you will pay.

You should also understand your risk in any loan you take. If you can’t make the required payments, what will be the consequences? What happens if the car is damaged or driven too much before the end of the loan? You should know and understand all the terms and conditions in advance. The best options for financing a car in the UK are discussed below.

There are important considerations to keep in mind when exploring and then choosing a car finance option. You will need to pay interest, so you should fully understand how much that will cost you before you sign an agreement. The general rule of thumb is the lower your down payment/deposit or the longer your time to pay the loan off, the more overall interest you will pay.

You should also understand your risk in any loan you take. If you can’t make the required payments, what will be the consequences? What happens if the car is damaged or driven too much before the end of the loan? You should know and understand all the terms and conditions in advance. The best options for financing a car in the UK are discussed below.

Hire Purchase (HP) Financing

This is the most simple and most popular car financing option –

Best for people: Only have a small down payment or trade-in only; have less than perfect credit; drive many miles.

Advantages: Fixed interest and monthly payments; no “balloon payment”; early pay-off option; loan security is against only the car.

Personal Unsecured Car Loan

This method is where you usually borrow 100% of the car purchase price, typically from a bank. This type of financing gives you the most freedom.

Best for people: Want to fully own the car right away; want the freedom to drive as much as they want or sell the car at any time, have a strong credit rating.

Advantages: Fixed payments; longer loan terms and lower interest; can buy the car from any source (not just a dealer); can arrange 100% financing.

Personal Contract Purchase (PCP)

A PCP is somewhat complicated but offers some advantages. You basically only have to pay the amount of depreciation cost for the time you use the car, typically between two to four years. However, this only works out if you stick to your declared intended mileage use and the car is undamaged at the end of the financing period.

Best for people: Who want a higher price car; like to regularly get a new car; have a small down payment.

Advantages: Lower payments than with HP loan; fixed payments; early pay-of option; loan secured against the car only.

Personal Contract Hire

This is where you lease the car – which is basically a long term car rental. The term is typically between one to two years long. Many leases cover maintenance and break down coverage. The more you drive the car or the longer you keep it, the more expensive the lease will be. This arrangement is best for people who don’t want to own the car, but just to use it and like to drive the latest models.

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