What Is The Best Way To Finance A Car in London?

In London, more drivers than ever are choosing car finance or leasing to help spread the cost of buying a new car. Car finance is an affordable way to help manage your payments without having to empty your savings.

If you’ve never had a car on finance, you may be wondering what the best car finance agreement is. Certain finance agreements may suit some people rather than others and factors such as monthly budget, credit score, and deposit contribution can affect your finance rates.

The guide below looks to explore each form of finance in more detail and help you decide if car finance is right for you.

Should you get a car on finance?

For many drivers, getting a car through finance is a no-brainer. The cost of new and used cars is at an all-time high and even a used car can set you back thousands of pounds. Car finance gives you the ability to spread your car into affordable monthly payments over several years. Some finance deals may require a deposit contribution but there are many affordable car finance deals with no deposit needed.

You can then choose to spread the cost over 3-5 years, whichever is the most affordable for your circumstances. For many people, car finance means they can get a better and newer car than they would when buying a used car with cash and choose flexible payment terms that suit them

What to consider before car finance?

Whilst there are so many benefits of taking out a car finance deal, there are a few factors that you should consider before you apply for car finance.

1. Credit score. When it comes to any form of finance or credit, your creditworthiness is important, whilst it can be possible to get a car with low credit, it can be worth increasing your score before you start applying as you may see easier acceptances and get offered a better rate.

2. Lenders will usually want proof that you can afford your car finance and also see how you are going to pay it back. It’s worth getting your documents together before you start applying such as the 3-month worth of bank statements or payslips to help prove how much you earn.

3. Not only is car finance about how much you can afford but it’s also the likelihood that you will be able to pay it back. You should only take out a car finance deal that you know you can meet the repayments of so if you think your personal circumstances are going to change soon, it can lead to serious financial implications if you can’t repay.

Different ways to finance a car:

In the UK, 3 main types of car finance agreements tend to be the most popular.

Hire Purchase

Hire purchase car finance is one of the most straightforward ways to finance a car. You choose the vehicle you like, and if accepted, you make equal monthly payments with interest to the value of your chosen vehicle. HP is a secured loan which means the lender owns the car throughout the agreement.

Payments are usually spread across 3-5 years and once all payments have been made on time and in total, there’s a small option to purchase fee and the car is then yours to keep.

Personal loan

A personal loan can be better suited to those with better credit scores and who are looking for the lowest APR car finance deals possible. Personal loans are usually offered by banks and building societies and aren’t a form of secured loan. This means when you are accepted you get your chosen amount deposited straight into your bank account.

You can then use the money to get a car just like a cash buyer. You will be the automatic legal owner of the car and can pay it back over a term that suits you.

You can sell the car when you like and modify it as you wish. However, if you do sell the car before the finance term is up, you will still need to meet the repayments unless you use the money to pay off your finances.

Personal Contract Purchase

PCP car finance is a form of hire purchase but instead of making payments that cover the cost of the car, you only cover the cost of the depreciation. This helps to make monthly payments lower than options but can be the most suitable if you don’t want to own the car in the end.

You can choose to hand the car back to the dealer once all payments have been made, use the value towards another car on PCP or pay the final balloon payment to keep the car.