Getting a car on finance is a great way to spread the cost of your next car into affordable monthly payments. But did you know you may be more suited to certain car finance agreements than others? There are 3 types of car loan which tend to be the most popular in the UK. There are multiple ways to pay for a car on finance. However the most popular tend to be a Hire purchase car finance agreement, a personal loan option or a personal contract purchase agreement. Refused Car Finance, a leading car finance broker, explores each type of car finance agreement. So you can see whether its right for you.

Personal loan

A personal loan is usually the cheapest way to finance a car. But only if you have a good credit score. If not, you could consider improving your credit score before applying for finance. A personal loan or a bank loan can be used for pretty much anything. You can use a personal loan on new or used cars. You would apply for the amount needed for your chosen car and if accepted. Furthermore you aren’t limited to where you can buy the car or who from.

Personal loans can be spread across 1-7 years. However you should try to choose the lowest term with the highest amount you can afford to pay each month. This will reduce the amount of interest you will have to pay overall. The loan isn’t secured against the vehicle either so you will be the automatic legal owner of the car. Meaning you can modify or sell it as you please. Also remember that if you sell the car during your agreement, you will still have to meet the repayment deadline each month.

Hire purchase car finance

Hire purchase car finance is a straightforward type of loan which require you to meet monthly repayments to an agreed term with added interest. The loan is secure against the car until the final payment has been made. The ownership will then be transferred to you. However, this means if you fail to meet the repayment deadline during the agreement, the car finance lender has the right to take the car away from you. You may be required to put down a deposit for some car finance agreements. But there are also many no deposit car finance agreement available if you don’t have savings to hand. There are also no mileage charges associated with Hire Purchase

Personal contract purchase

Monthly payments tend to be lower on PCP deals compared with other options. This is because you aren’t spreading the whole cost of the car into your payments and it’s a great choice for people who like to change cars more frequently. You get a loan amount for the difference between how much it is worth and how much the car will be expected to be worth.

At the end of your agreed term, you then have 3 options. You can either hand the car back to the dealer and walk away, pay the balloon payment, and keep the car or use the value of the car to start a new PCP deal with another car. You are essentially hiring the car for part of the agreement and if you wish to hand the car back you will need to abide by mileage and damage restrictions. Plus you may have to pay additional mileage and damage charges if you return the car in an unsuitable condition.