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Car Finance FAQ

To help you get a basic understanding on car finance we have set up the below descriptions on each of the product types available on the market.

Car Finance FAQ

Hire Purchase or Conditional Sale

With Hire Purchase you agree with the dealer how much you are going to borrow and the dealer then contacts the finance company which pays for the car on your behalf. You then repay the motor finance company (usually monthly) until the car is paid in full at which point you then own the car. Car purchases can often add balloon payments to the end of the period to reduce monthly payments. This is usually the quickest and easiest way to arrange finance and often has low deposits.

Personal Contract Purchase (PCP)

Personal Contract Purchase is extremely similar to a hire purchase agreement but with a balloon payment at the end. The idea being the balloon payment means you def part of the cost until the end of agreement making monthly payments smaller. At the end of the agreement you then have to either pay off the deferred amount in full or trade / hand the car back to the dealer dependant upon the terms of your agreement.

Personal Leading (Personal Contract Hire)

A personal leasing contract is, put simply, a form of rental. When taking out a personal contract hire you agree a fixed monthly fee with the dealer who arranges for the finance company to pay for the vehicle on your behalf. The monthly payments are made to the finance company by the purchaser until the end of the agreement when the dealer or finance company then take control of the vehicle. Typically these agreements cover servicing and maintenance costs leading to fixed cost motoring.

Personal Loan

The car purchaser will arrange a personal loan from a bank or alternative financial company and this is passed onto the dealer from the purchasers bank account. The lender is then paid on the agreed terms with the car owned by the purchaser from the start and they can sell when they please and continue to pay the loan until finished.

Mortgage Topup

A mortgage top up is similar to a loan but made with the purchasers mortgage provider. The purchaser makes arrangements with their mortgage provider to borrow money (withdrawing the equity from the house value or a second mortgage) and pays the dealer for the car in full. They then repay the mortgage provider until the loan is finished.

Credit Card

Although credit cards are ideally to be used for short term borrowing some choose to pay vehicle finance deposits or sometimes even the entire cost of the vehicle using this method. Interest rates are extremely high though and this is something which should be taken into account.

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