Almost every car dealer, car broker, or car garage will present you with a financing option when you purchase an automobile; this is a significant source of revenue for the automotive industry. Car finance is an umbrella term encompassing a number of options that let you either lease a car for a set duration before having the opportunity to buy it outright, or borrow the money you need to buy a new or used car.
When it comes to car finance, there can be a lot to take in and recollect – you may find yourself thinking: “how does car finance differ around the world?” Well, we’re here to break that down for you.
What Is Car Finance?
In the UK, car finance is a loan that is used to pay for a particular car you would like to buy. It could be a “zero deposit” loan (so they call it), in which you borrow the entire sum of money, or it could be a partial loan whereby you contribute a deposit upfront. You apply for finance, purchase the vehicle, and then pay the lender the agreed-upon monthly repayment amount.
Vehicle dealerships, auto finance experts, and other lenders are just a few of the places where you can find car finance loans. You can still have car finance despite having a bad credit score.
Car Finance Options In The UK
If you’re fortunate enough to have the cash on hand, you can purchase a car outright (count yourself lucky), but the majority of people must choose a financing option. There are three primary types of car finance you can opt for: personal contract purchase (PCP), leasing, and hire purchase.
How Car Finance Differs In The UK And USA
It is crucial to understand the type of financial agreement you are agreeing to when you purchase a car. You should never sign any documents or consent to any legally permanent financial agreements unless you fully comprehend what they represent and what they mean.
As we mentioned above, there are three main financing options in the UK – one of them being personal contract purchase. Well, in the USA, this is known as a lease. Likewise, hire purchase is known more simply as financing in the USA. Continuing the trend, car hire is referred to as car rental in the United States.
What Is A Personal Contract Purchase?
Typically, this entails making a deposit followed by small instalment payments over a specified time period. After that, you can pay a lump sum to buy the car outright, give it back, or sell it privately to cover the remaining balance.
What Is A Hire Purchase?
In a hire purchase agreement, you pay the loan and interest together with the rental fee each month. Such agreements typically demand a deposit of around 10% or more, but generally the more you deposit, the better your finance terms. Once you’ve made the final payment, the car is yours. You can choose a payback period length of up to five years.