Ok, so you’ve got your eyes on your dream motor. The only snag? It is far more than you can afford in one hit, and your only option left is to consider car finance. Well, you’re not alone.
Not only is car finance the most popular way to buy a car in the UK, but it is the most viable option for many. With your low fixed monthly repayments and all the extra perks from servicing to road tax thrown in, financing your next vehicle takes the stress out of buying.
Whether you’re considering a personal loan, hire purchase, lease or personal contract purchase, there are plenty of options available to suit your circumstances. Let’s take a look at why you should consider car finance to buy your next vehicle:
More options than ever before
One of the biggest perks of buying a vehicle with finance is that you can pay off your car in monthly instalments. This allows you to have more flexibility within your budget than if you’d paid with cash.
What’s more, you have access to the latest or newer models that have far better safety specs, onboard technology and may have extra perks such as zero road tax and servicing included.
But it also puts you in control of colour, trim and engine size that you won’t necessarily have with cash alone.
Improve your credit score
Whether you’re a financing newbie or this isn’t your first walk around the park, making regular payments will improve your credit rating.
Prompt and on-time payments will demonstrate to other credit providers that you’re a customer worth lending to. It shows that you can manage credit well and stick to your agreed repayment schedules. In short, an excellent credit score will make financial companies more ready to approve future loans that you might want to apply for, especially if you’re newer to the credit market.
But for some consumers, getting approved for a loan is much more complicated. If you’ve recently been rejected for approval, it may be because of a past missed payment, you’re self-employed, or there is a County Court Judgement (CCJ) in place. Whatever the reason, having a bad credit score will prevent you from getting the best deals.
However, hope is not lost. There are a range of reputable bad credit car finance lenders out there who specialise in getting you back on the credit ladder and helping you buy a car with bad credit. They will look at your individual circumstances and work alongside you to figure out how much you can reasonably afford without breaking the bank, all while helping you rebuild your credit score.
Puts you in the driving seat of your budget
Before you even consider car finance, it’s worth looking at your monthly expenditure and making a budget. Try and include:
- Rent/mortgage
- Utilities
- Food
- Road tax
- Insurance
- Fuel
- Servicing and running costs
- Entertainment
That way, you know how much you can reasonably afford before ever setting foot in a dealership or making an application for finance online.
Once you have a good finance agreement, you will know how much you owe and when each instalment will be taken from your account each month. This will help you monitor and stay on top of future expenses and help you build up your savings in the long term.
Zero collateral
Unlike other types of finance, you won’t need to put anything down as collateral. The car itself serves as the collateral for the loan, so if you fail to make your payments, then you won’t lose anything other than the vehicle itself.
While there is no collateral attached, failing to pay your payments will impact your credit score and will likely affect your chances of getting approval elsewhere.
A note on depreciation
While it’s true some cars retain their resale value better than others, most cars value depreciates by 15-35% in the first year and up to 50% or more over three years.
That’s where a PCP finance plan thrives as it takes into account what the car is likely to be worth at the end of your agreed term. The amount is typically known as the “guaranteed minimum future value” (GMFV) or “residual value” (RV).
Towards the end of a PCP agreement, you can choose to pay a “balloon payment”, which will be equal to the GMFV. Once paid, this will make you the sole owner of the car.
If your car is actually worth more than the GMFV, you can put the equity from your current vehicle towards the deposit for another PCP deal for a new car. But this is where your finance options are worth considering, particularly if the make and model of your vehicle holds its value well.
Road to electric
It’s safe to say, the future of the automotive industry is going green. With most brands announcing a complete overhaul of their combustible engines to electric by 2030, in line with the oncoming ban of all new petrol and diesel motor sales, there’s never been a better time to jump on the car financing bandwagon:
- Ford will only by selling all-electric in Europe by 2030
- General Motors will only make electric vehicles by 2035
- Jaguar will be all-electric by 2025
- Lotus will be all-electric by 2028
- Volkswagen has pledged 70% of all new cars will be all-electric by 2030
But most electric vehicles (EVs) don’t come cheap. Ranging from £29,790 for the newest Nissan Leaf to £73,990 for the Tesla S, there’s more than just upfront costs to consider.
However, this is where car financing shines. No longer do you have to save up for months upon end for a good secondhand car. Instead, you can apply for finance and walk into the dealership or order online on the same day. Buying a car has never been more exciting!
Car financing makes your next car more than just a pipedream but a reality. With more options at your fingertips than ever before, you can bag yourself a bargain! What car will you drive away in next?
