Your Need to Know Guide to Car Finance

A car finance loan is a loan you take out for the specific purpose of buying a car. They can be a way of spreading out the cost of the purchase, though like all loans they generally come with interest rates and potentially extra charges or fees.

What types of car finance loans are there?

Personal loan: one option could be to take out an unsecured personal loan, borrowing a certain amount of money over a set period and making monthly repayments. This means you would own the vehicle as soon as the car dealership gets the money – so you’ll be able to sell the car on if you wanted to.

Hire purchase: you could also take out a hire purchase agreement, where you make monthly payments to a car finance company while hiring the car from them. After the final payment you would then own the car. You generally must put a deposit down. This is usually around 10% of the loan amount, but the more you put down the lower your monthly payments are likely to be.

Personal contract purchase: the third option would be to take out a personal contract purchase. This is like a hire purchase in the sense that you put down a deposit and make monthly repayments – and the higher the deposit the lower the payments will probably be. However, they are also lower in general compared to hire purchases, as rather than paying off the value of the car brand new, you pay off the value of its depreciation at the end of the contract. Then you make a choice between paying off the rest of the car’s value and keeping the car, returning the car, or taking out a new personal contract purchase and getting another car.