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Car finance: Is it worth it, what is best for me, how do I do it

Car finance can be an excellent way to buy your next new or used car, but it is dependent on each individual's needs and budget.

Buying a car is an important decision to make and more than likely the second most valuable thing most people buy behind a home.

That's why it's something that shouldn't be rushed, and it's worth taking time out to properly do some research about what is right for you.

More than 90% of new cars are purchased using some form of finance these days, so it is a widely popular way to buy.

There are various different finance types that are available, and it's important for you to understand what each one is and what makes the most sense.

If you already have a car finance deal, use the deal checker below to get a free appraisal of your finance deal.

Check your deal now

A finance deal can certainly take some stress away from the overall cost of a vehicle because you aren't stumping up for it all in one go and can decide how much deposit you put down on it.

The key things to think about are: how long do you wish to be paying off the finance? Do you want to own the car outright in the end? How much money do you comfortably have to put down for a deposit?

Let's get into what finance deal is best for you and the conditions you would like for your purchase.

Where are you buying your car from?

Personal contract purchase (PCP), hire purchase (HP) or leasing, are the most popular car finance methods and you can find out what each of them entails in the article we previously wrote below.

Typically, these finance types are only offered by manufacturers and dealerships on the vehicles they have available to them.

This is predominantly for buying a brand new car, although some used car dealers may offer similar deals.

There are some dealers that don't offer finance, however, and if that's the case then it's worth taking out a personal loan, usually from your bank, and then paying them back monthly, as opposed to a finance company.

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Owning the car outright

If you are taking out a PCP deal, you will have the option at the end of the term to own the car outright by paying the balloon payment, which is a lump sum of money agreed at the start of the agreement.

If you don't wish to own the car outright, though, you can hand it back to the finance company without any additional charges, providing the car is still in good condition and you've not exceeded any previously agreed mileage limits.

Then you are in a position to get a brand new car if you wish and start the process again.

PCP deals are best for people who want to make smaller monthly payments and jump from car to car every few years without owning anything themselves.

If you take out an HP deal, you will pay the agreed fixed monthly payments until everything is paid off and then the car will belong to you at the end of the deal.

This type of deal is best for those that know they want to be the sole owner of the car when their term is up - typically after 24-48 months - and not have to worry about repaying any more after that.

The monthly payments are generally a little more than on a PCP as you don't have the option to make a lump sum at the end of the deal; you pay the same amount every month until the total sum of the car is paid off.

Leasing involves hiring the car over a long period of time. It's a similar concept to if you went on holiday and rented a car for two weeks. With this type of deal, you are essentially renting a car for a fixed term and making monthly payments to drive the car around.

So there are several different options available to you which means that you can tailor your deal to what suits you best, which makes car finance a lucrative proposition for those interested in taking it out.

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Deposit

Having a larger deposit to put down on your car would help make your monthly repayments cheaper, but if you don't have that money available to you, it's certainly still possible to get a car on finance with a lower figure.

A lot does depend on your credit history, which is something you can read more about in our previous article below.

If your history is good, the more chance you have of being approved. If it's not so good then your chances are less likely but there will be plenty of options available to you.

Budget

Your personal budget is the most critical factor in making a decision as to whether car finance is worth it for you.

Everyone has different requirements for a car, much like everyone will have different budgets, so it's your job to properly research before investing.

Car Credible's Affordability Calculator can certainly make that task easier for you and you can read more about it in the article below.

You can input the cost of the car, how long you'd like to make monthly payments for, the deposit you can put down, and how much you'd like to pay per month and we will tell you exactly what you can realistically expect, so you know before you go.

Check your deal now

We will then offer advice on how you can reduce your interest, or the positives of reducing the length of your term, for example.

Whatever budget you have to play with, it's all in your hands. Only pay what you can afford and don't leave yourself short over time.

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