Know Your Options When It Comes To Car Finance

Monday, December 16, 2013

Know Your Options When It Comes To Car Finance

Buying a car, whether that is your first car or the next family car usually involves a lot of money. In fact, buying a car is usually a person’s biggest purchase other than buying property. However, a car purchase can be a stressful experience if you are not familiar with the pitfalls of funding this.

Image credit: kurhan / 123RF Stock Photo

When considering financing, for a car purchase you should think about the following:
  • Funding
  • Credit Status
  • Hire Purchase
  • Zero Financing
  • Personal loans
  • Circumstances


The days when someone would save up for the car are long gone and for the vast majority of us borrowing money is the only way to finance a car purchase. This inevitably involves car finance and the range of options available can be confusing to those new to loans and financing.

Credit Status

Car finance is heavily reliant on your credit standing, which, unfortunately, means you are either refused credit or restricted to a higher annual percentage rate. However, for those who pass the credit check they are then offered a range of car financing options.

Hire Purchase

Often, your first option is Hire Purchase or HP. Traditionally, you will be asked to provide an initial deposit and then make an agreement to pay the remainder of the balance in instalments over a period time, usually over 12, 24, 36 or 48 months.

It is worth noting that when using hire purchase agreements you will usually be restricted to the one and only financing company the car dealership has an agreement with. Also, the longer you take to repay, the higher the interest rate will be, so you will pay more over longer periods.

Zero Financing

Some auto financing companies, especially those who supply specific car companies, may provide you a zero financing package. This typically involves you paying a larger deposit which can be as high as 50% of the purchase price and then you make regular payments as with any HP agreement.

When dealing with a hire purchase agreement it is very essential to note that should you fall behind with your payments the investment company can (at their own discretion) recover the car.

Personal Loans

Your second choice to finance your car purchase is a personal loan. This type of financing gives you the benefit of a wide array of loan provider’s competing for your business, which means you can get a highly competitive deal. A further advantage of using a personal loan is that there are many comparison websites that will seek to find you the best deal available.

There are two main advantages of using a personal loan over a hire purchase agreement. Firstly, a personal loan application can be completed, and the money can be in the bank before you buy the car. Whereas a hire purchase contract will be for a specific car once you have found it and so can restrict your ability to negotiate, secondly, a personal loan gives you more options and a variety of different providers, which guarantees that, you are getting the best available deal. However, as mentioned before, a hire purchase agreement is usually provided by a single provider in an exclusive agreement with the car dealership, so your options are vastly reduced.


When purchasing a car through financing you have a number of options, however, it is necessary to consider your needs and budget before committing to a specific funding strategy. Each has its own advantages; however, one will suit you and your financial circumstances more than the other.

About the Author-

As the founder of, David Lye has a passion for cars and shares his knowledge of car financing with those new to funding a car purchase.

No comments:

Related Posts Plugin for WordPress, Blogger...