Choosing the best form of car finance in the uk

There are a variety of options when it comes to car finance in the UK. Your choice will depend on your choice of car, mileage, your deposit and the amount you would like to borrow. Be sure to look at all the options available, so that you can get the best deal for your new or used car. You can choose from a loan, hire purchase, personal lease or contract hire.

Taking out a car loan is a popular way to purchase a new or used car. Like other loans, a car loan has a fixed APR over the term up to 60 months. A car loan is the same as a personal loan. Therefore, the funds are not secured against the vehicle, and you are the legal owner of the car. You will need to credit worthy to take out a personal loan. Some companies will provide loans to people with a poor credit rating. You can end or settle your personal car loan at any time by paying the remaining balance to the lender. Once you make all payments, your loan contract will end. Your lender may charge you fees or charges for arranging and discharging the loan.

Hire purchase, or HP, is a hire style agreement that allows you to purchase the car for a fixed price at the end of a two to three year agreement. Your car is the security for the finance, so the finance company owns the car. You will be the registered keeper and be liable for all motoring costs. At the end of the hire agreement, you can pay a notional fee, of between £50 and £100, as an ‘option to purchase’ fee to transfer legal ownership of the car from the finance company to you. You can end the agreement by agreeing to pay an early settlement figure, which is based on the remaining balance on the agreement plus any fees. Some lenders have a clause that allows you to voluntary terminate your contract at a given point, assuming the car is in good condition. However, this may affect your ability to get credit again as a voluntary termination is noted on your credit file for six years.

A personal lease or contract hire agreement sets out fixed monthly payments for two to four years. At the end of the agreement, you can have the car replaced by another new car. With a personal lease or contract hire agreement, you will not own the car. It is usually cheaper to hire a car this way than purchase one with a car loan or hire purchase. You do not need to sell your old car to get a new car as the lease company deals with this for you. There is also less of a financial risk as you pay for the car over a short period, which may be useful if you have a fixed-term employment contract, for example.

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