What do I need to finance a used car?
Finding the right car is a challenge and choosing how to pay for it is part of that difficulty as its often a sizable investment. By looking through the available payment options and finance deals we can help you decide what is right. This article will help you understand the finance options, the price of the car, the monthly repayments and why finance on a used car can help you get the car of your dreams.
Credit Scores and Car Finance
If you aren’t purchasing a car with cash, you will be looking at finance purchasing options and this is where credit scores come into play. A good credit score is needed when going to buy a car with a car finance method and will allow for better deals when the monthly payments are being worked out.
Also, just because your credit score is high and you're allowed to borrow a larger amount, it doesn't mean you're going to be able to afford it. You've got to work out all the outgoings and be sure you can make all the monthly repayments for the finance agreements total amount across the full term.
Many companies that check credit scores take a lot of things into account. Everything from outgoing credit card bills, loans, mortgages and more are key factors into whether your credit score is good or bad.
Find out what your credit score is and how to improve it by having either a finance company look over your account, go online with a company like Experian, Moneysupermarket or downloading an app like ClearScore.
Car Hire Purchase
This is an easy way of financing vehicles. Option to use no deposit, but generally, most people usually pay about 10 per cent of the value as a deposit, so you make fixed monthly payments over an acceptable period.
Here’s what you need to know:
Unlike a personal loan, the car is not yours until after the final payment. It ensures that the finance against the car is secured, so you may lose the vehicle if you miss payments.
Normally, the used car dealer sets up the hire purchase agreements. Brokers also offer this service
Normally, rates on used cars are not as good as a new car, however, at Parkland Motors we offer great financing options which are just as competitive as new car dealerships.
You have certain consumer rights with hire purchase agreements.
Once you have paid half of the car's price, you may be able to return it and you may not have to make any more payments – review our terms and conditions, and the agreement to see if it applies to you. This will show up on your credit score and may affect your ability to borrow again with some lenders.
Once you have paid a third of the total amount that you owe, the lender cannot repossess your car without a court order.
Personal Contract Purchase (PCP)
A Personal Contract Purchase (PCP) is another way to finance a vehicle. It’s like a hire purchase, but after the contract ends you have a few options to consider:
Pay the resale value (balloon payment) and keep the vehicle.
Return the car to a dealership in a part-exchange deal.
Use the resale value towards buying a new car.
You do, however, need to know how a PCP works and make sure it’s right for you.
Here are the steps to getting a PCP deal:
When setting up the PCP, you will need to pass a credit check. Nevertheless, it won't check your ability to make the monthly repayment. When signing up for a PCP offer, it's really important to make sure you've figured out that you can afford to meet all obligations over the contract's entire term, which could last up to six years depending on the finance company.
You will usually have to pay a deposit of around 10% of the value of the vehicle, but this is flexible.
Whilst using the car, you make the repayments for the duration of the contract.
Make sure you stay within the mileage agreed to avoid any extras fees.
You'll have to make a final payment, called a balloon payment if you want to keep your car. This is based on what the dealer believes the car is now worth. This can range from a few hundred to thousands of pounds depending on the manufacturer, age and value before starting the agreement. This is also called Guaranteed Future Value (GFV)
Instead, you may offer to pay off the Guaranteed Future Value (GFV) and fund a new car if you’d like to.
Important information about PCPs:
Please read your contract and terms and conditions to ensure that you understand the costs and what happens if your financial position changes. Make sure you know how much you're paying back – often with a PCP, you can be spending more than you usually do with other types of finance.
You can be charged for exceeding your agreed mileage, this will be dependant on the agreement.
Excessive wear, tear, and damage, including scratches, can mean that you will be charged extra at the end of the contract.
You must have paid at least half the value of the vehicle if you wish to end the contract early or cancel it. If you have not, before you can amend the deal, you will have to pay the difference. The vehicle must also be in good condition or repair costs will need to be paid.
Check your PCP contract if you plan to take your vehicle abroad because certain companies will limit the number of days that your car will be allowed to leave the country.
Personal Contract Hire (PCH)
A personal contract hire plan (PCH) is a type of vehicle leasing where you never own the vehicle.
If at the end of a PCP you don't plan to buy the vehicle, a PCH may be a cheaper option.
Here’s how PCH works:
You will have to pass a credit check and pay upfront for a few months of a contract, usually three months. While you may pass the credit check, businesses don't check if you can afford the monthly payments. It is up to you to ensure that you have found out that you can pay for what you agree with. It's really important that you've been careful about all your outgoings before you sign every deal and you're confident that you're going to be able to reach repayments for the entire duration of the contract.
To avoid additional costs, use the vehicle and keep to your mileage agreement. Costs such as maintenance and vehicle excise duty (car tax) are included with a PCH, and you just have to pay for fuel.
Keep the car in good shape. Any harm not allowed in your terms and conditions could result in additional charges being paid.
Return the car at the end of the agreement.
Important things to know about a PCH
Please review your contract and terms and conditions to ensure that you understand the costs and what happens if you change your situation and need to change your agreement.
Generally, you will be charged extra fees if you go over the mileage in your contract.
You usually have to pay certain charges if you want to terminate the contract early. Check the terms and conditions before signing up so if you need to get out of the deal, you're set.
It has to be in good condition when you return the car. Usually, normal wear and tear is allowed, but it depends on your agreement. Any harm not protected can mean that you have to pay additional fees.
Things to Remember
Remember with leasing, whether you repay early or surpass the planned mileage, you will be charged a fee.
Compare over the duration of the loan the total costs of the loans, including interest and all fees.
Ask yourself if you can afford the running costs of the vehicle in addition to your monthly payment.
Compare interest rates by taking an APR, which includes the interest rate and all other fees from the lender. The higher the balance, the lower the interest rate.
Look into GAP or liability insurance cover when purchasing a new or used car.
Remember to also speak to your finance company or lender as soon as possible if you get behind on your car payments. Maybe you can get the car back or pay off the loan early.
How can we help?
At Parkland Motors, we offer a selection of payment plans for you to find the right car loan. Our in-house fast track system allows us to arrange finance promptly and efficiently to ensure that you are getting the best value for money. We provide the facilities to offer flexible finance deals to suit almost any budget! To work out your monthly repayments and see which plan is right for you, visit our finance page.