Financing Your New Used Car

At Autozone, we understand your excitement when you’ve found a car you love. Sometimes, it can be devastating to learn that the car you wanted has been sold or isn’t within your cash budget. In cases like these, buying your dream car on finance might be the best option as it takes that lump sum you’d normally pay and spreads your monthly payments over a 2-5 year period depending on the agreements of the contract.

Once you’ve decided that you want to finance your car, you’ve then got to decide what finance deal you want to go with. Hire Purchase (HP), Personal Contract Purchase (PCP) and Personal Leasing (PL) are the most common ways used by car dealerships to finance your car. Depending on the dealership, you can start the financing process by submitting your basic information in order to receive an accurate quote in terms of what you’re most likely to borrow. Other dealers might include example prices and contract lengths in order to give you an idea of how much financing your new used car would cost.

Choosing the right finance for you is dependent on your lifestyle and payment habits, some options require higher payments, others have payments that are fixed etc. as well as allowing you to own the car at the end of the agreement or simply returning it and choosing another to make payments on. 

Hire Purchase

Hire Purchase is one of the most common types of car finance, and it’s the only one of the main three types where the aim is that you become the owner of the car at the end of your agreement period. Once you’ve found the car you want to buy, you’ll put down a deposit of around 10% which will then be subtracted from the vehicle’s value. After you’ve agreed on the length of the contract, you’ll then pay back the remaining amount of the car’s value plus interest over a set number of months between a 1-5 year period.

Ownership of the car will then be transferred over to you once the agreement has reached its end and you’ve made all the payments. In some cases, a transfer fee may be required and it’s important to remember that the vehicle will be repossessed if you miss or fall behind on any payments. 

Pros of Hire Purchase

• Get to own the car at the end of the contract
• Don’t have to worry about keeping to mileage limits
• No VAT to pay on monthly instalments
   

Cons of Hire Purchase

• The loan is secured against the vehicle meaning that it can be repossessed if payments fall behind
• Payments tend to be higher than PCP and Personal Leasing deals
• Because payments include interest, the car will cost more overall than if bought with cash
   

Personal Contract Purchase

Personal Contract Purchase, more commonly known as PCP, is similar to Hire Purchase however it takes into account a few more factors in order to calculate payments. While you are still required to pay a deposit, you’ll actually be repaying the car’s depreciation instead of its value. This, plus interest, is calculated together to form your payments. Payments on a PCP finance deal tend to be lower as you are paying for your use of the car, owning the car at the end of the agreed period isn’t usually the case. Instead, you can return the car and take another PCP deal out on another vehicle, or you can part-exchange the car in order to get a better deal on a newer vehicle.

If you do want to keep the car once your agreement has come to an end, you will be required to make a much larger payment compared to the ones you’ve been making on a monthly basis. This is known as a “balloon payment” and it covers any future value of the car.  It is important to remember that the vehicle will be repossessed if you repeatedly miss payments, and you can be additionally charged if you exceed the agreed mileage limits or damage the car. 

Pros of Personal Contract Purchase

• Lower monthly payments compared to Hire Purchase
• Monthly payments are fixed
• You’ll know the car’s worth at the end of the contract from the very beginning, meaning you can budget early if you’d like to take out another PCP deal
• More flexibility with what you want to do with the car at the end of the agreement
   

Cons of Personal Contract Purchase

• You won’t be able to own the car without making all the payments and the final “balloon payment” lump sum
• Exceeding mileage limits or damaging the car will lead to additional charges
• If you do pay the “balloon payment” you will have paid more to own the car in comparison to Hire Purchase
   

Personal Leasing

Finally, the third type of car finance is personal leasing. Personal leasing is perhaps the simplest of the three common types as it just means that you are renting the car for the duration that you are making payments on it. The car’s value, depreciation, mileage limits, length of the lease and interest are all taken into account when determining how much you will be paying back. Additionally, road and breakdown cover can be included in the contract as well to give you peace of mind while you drive the car.

With personal leasing, there is no option to own the car. At the end of the agreed period, you can return or part exchange the vehicle and simply choose another that you’d like to take a lease out on. Like with all types of finance, the vehicle can be repossessed if you fall behind on payments, and it’s important to be realistic about the annual mileage limits you agree to as you will be charged for every additional mile you exceed over the agreed limit. 

Pros of Personal Leasing

• Get to drive a new car every 2 to 3 years without having to worry about depreciation
• Lower deposit and monthly bills
• Payments are fixed and a maintenance package is usually included so you don’t get any surprises
• No hassle once the agreement ends because you just hand the car back
   

Cons of Personal Leasing

• No option to ever own the car
• Exceeding mileage limits can be expensive
• You’ll need to take out comprehensive insurance while you use the car as it isn’t yours
   

At Autozone, we also understand that you might feel as though you can’t apply for car finance with us if you have a poor credit score. While a poor credit score can make it difficult to get approved for car finance, it might not be impossible as there are ways that you can improve your credit rating:

• One of the best ways to improve your credit score is to look at your credit history, find any mistakes or outstanding payments and correct them as soon as possible.
• Using a guarantor can be beneficial too, someone with a good credit score co-signing for a car with you increases your chances of getting approved. It’s important to remember however your guarantor is aware that they are jointly responsible for the lone and will have to make payments should you fall behind.
• Registering to vote shows lenders that you have a permanent address and the best way for them to get in contact with you. 
   

If you’d like to take out used car finance in Barnsley or South Yorkshire, then you can apply on our website via our finance calculator where you’ll receive an instant no-obligation quote. Calculating your finance with us won’t affect your credit score.