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Car Loans Explained
With a car loan, money is loaned for outright purchase of the vehicle that is paid back over a period including interest. The car is the property of the purchaser on buying. Banks, building societies, finance houses and credit card companies are usual sources for loans.
Hire purchase or conditional sale is similar to a loan but the car remains the property of the lender until a final payment is made. Car dealers are also able to offer such finance facilities.
When using car hire purchase to buy a car, you pay a deposit, a fixed amount for an agreed number of months and then you own the vehicle. Hire purchae is available for new and nearly new cars - used cars over two years old are often excluded because their values will be too low by the time the loan ends.
Car hire purchase is available from banks, car dealers and loan companies.
* Easy to obtain and straightforward * Cheaper than some other types of loan
· Car remains the lender's property until the agreement ends. Until then, you cannot sell the car without obtaining permission.
· If you fall behind by as little as two repayments, the finance company can repossess the car, sell it cheaply at auction then sue for anything still owed, plus their costs.
Most companies offer car hire purchase facilities to ordinary people with or without a home business. An insurance quote is necessary due to high interest rates and unsecured monthly payments. Payment for homes is most secure with fixed rate mortgages if interest rates are increasing. The owner of a house can also benefit in many different ways through buy to let mortgages. Today, online banking plays a great role in the business environment by giving them a payday loan. These types of loans help people to stay away from debt.
Contract and Lease purchase finance arrangements are also available for the private buyer. The main schemes are:
If you intend to change your car at the end of the plan then PCPs are worth considering. Deposit and repayments are set to ensure that the value of the car will be worth more at the end of the plan than the final payment. Deposits will be above 10% but monthly payments relatively low. You may hand the car back at the end of the period or make a final payment which should be less than the value of the car.
PCP (Personal Contract Purchase) is an abbreviation for Personal Contract Purchase. PCP is a relatively new way to finance your desired new or nearly new vehicle. The PCP allows you to contract into an agreement over a set period of time, with an agreed maximum mileage.
The major benefits of PCP are that it offers a lower cost and is a more flexible alternative to other finance packages. The PCP also offers much greater flexibility at the end of the term, the driver can choose from these options:
Return the Car
With PCP, when the contract term comes to an end, the driver can advise the lender and simply return the car with nothing else to pay, subject to it being in a reasonable condition. The advantage of this approach is that there is no need to pay the "Final Optional Payment". Where a vehicle is returned in a condition that is considered by the lender to be below the anticipated standard for age and mileage at the end of the contract, charges may be applied to bring the vehicle to the required condition.
Keep the Car
PCP allows the driver to own the car outright, by paying the Final Optional Payment.
A no worries but expensive way to finance a car. Deposits will be low and repayments relatively high. Maintenance will be covered and so there are no extra motoring costs apart from insurance. PCHs are more suited to the self-employed or business user.
Lease Purchase
Similar to hire purchase with a defined final payment at the end of the period allowing the optional owning of the car at the end of the plan. Deposits can be varied but repayments relatively high depending on the final 'balloon payment' agreed.
The opinions expressed are those of the author only. The material is for general information only and does not constitute legal, financial or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation by an FSA authorised company where the market is FSA regulated.
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