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If you’re looking to buy a new car, you may be thinking about taking out a personal loan. But if you have bad credit, you might wish to consider vehicle finance options. As car finance is a type of secured loan, it could be the cheapest option for those with a low credit score.
So if you’re new to car finance, or wish to know more about the various options available, we’ve outlined some of the key points below!
Other than a personal loan, there are two main types of car finance to choose from. These are a personal contract purchase and a hire purchase arrangement. In essence, the two options are pretty similar, but there are a few key differences.
A hire purchase agreement is probably the more straightforward option, when compared to PCP, as it’s comparable to any other type of loan. You’d start by making a deposit towards the value of the car, and then make monthly instalments towards the outstanding balance.
Hire purchase is essentially a way to spread the cost of a vehicle, rather than buying it outright. Your repayments are covering the value of the car, as well as the interest applied. It is worth bearing in mind that the monthly payments tend to be higher with HP than PCP, but you will own the car at the end of your agreement.
PCP is a little bit more complicated than HP – instead of paying for the car itself, your instalments are put towards the depreciation of the vehicle. This means that you’re paying the difference between the value of the car at the time of purchase and the estimated value at the end of the agreement. So if the vehicle costs £10,000 new, and should be worth around £4,000 at the end of your loan term, you’ll be paying £6,000, as well as interest, throughout the agreement.
To buy the car, you’d then need to make a balloon payment at the end of your contract. In the example above, this would be a payment of £4,000. You don’t need to purchase the vehicle though – you can instead choose to walk away entirely, or enter into a new agreement with the lender.
If you have a low credit score, taking out credit can be more challenging. Even if it’s through no fault of your own, lenders won’t always take extenuating circumstances into account when making a loan decision. But with car finance, your credit rating doesn’t always matter too much.
In a vehicle finance agreement, the loan is secured against the value of the car. Therefore if you were to default on the loan, the lender has the option of repossessing the vehicle, and thus there is less risk for the loan provider. This not only means that the interest rates can be better with car finance, it also means that all credit histories should be considered. If you’re not sure how high your credit score is, it’s a good idea to check this before making a car loan application. You can check your credit rating for free via sites like Experian and Credit Karma, as well as get lots of handy tips on improving your score.
It’s not always easy to save up a deposit for a car loan, especially if you need to get on the road as soon as possible. Maybe you need a vehicle for work, or to pick the kids up from school. Whatever the reason, you may be surprised to know that not all lenders require you to pay a deposit upfront.
Of course it’s important to remember that paying a deposit can help lower your repayments. Though not necessarily by a significant amount! But if you’re looking for a no deposit car finance agreement, some lenders do offer this option. Perhaps the best way to find a car loan provider that offers no deposit vehicle finance is to use a comparison site or broker service.
New Car Finance Lenders
When it comes to taking out a car loan, it’s generally a good idea to shop around. Lenders can not only have different interest rates, they can also offer various types of agreement and levels of flexibility. You may also wish to research newer car finance providers, as well as brokers, as these organisations will often be more innovative. This could be anything from speeding up the application process to offering exciting new products and packages.
So when you hear about a new modern car finance lender, check out what they have to offer! One recent launch includes that of Wheelie Good Finance, who can help you find a trusted lender and the best deal for your budget. You’ll get a finance decision within minutes, and you can apply with no impact to your credit score.
As mentioned above, it can be sensible to look at a range of car finance providers before applying, to ensure you’re getting the best deal for you. An easy way to do this is by using a broker service – they can do all the hard work for you, comparing lenders, and making sure you meet the eligibility criteria.
The application process is generally straightforward when it comes to vehicle finance, especially when you use a broker service. Simply complete an online application, the broker will compare trusted lenders for you, and you should get a decision in minutes. Once approved, you can pick out your new car from a reputable dealer, and drive away happy!