If you want to buy a car and you don’t have the cash, you will either need to use a car loan, personal loan or take out car finance. When you use car finance you will need to sign a contract with terms and rules, this will usually state a date you will need to pay the amount back by. The same thing will apply for a loan. However, there are a few differences between car loans and car finance, we will explain them here..
There are a few main types of car finance, the main one being hire purchase car finance. If you don’t have much of a deposit and your credit rating isn’t as good as you’d hope, there are some options like car finance bad credit no guarantor you can look into. The hire purchase car finance option enables you to pay off your car in fixed amounts every month then at the end of the agreement, you will own the car. Other options like car leasing and PCP don’t always enable you to keep the car at the end of the contract. If you lease a car you give the keys back when you have finished paying it back and if you use PCP you will still need to pay what the car is worth at the end of the agreement.
Depending on how much money you have, car financing is a useful way to help you get a car. It will be down to you to decide on the type of car finance you would like to use. The more money you can put down as a deposit, the less your monthly paybacks will be. It’s worth bearing in mind, you will need proof of identity, a utility bill and 2 months of bank statements to use car finance, and of course your driving license.
Some would prefer to take out a car loan than use a car or personal finance to fund a car. The main differences are a loan will likely be organised through a bank, whereas finance is agreed with a dealership or a finance provider. You can buy a car with a personal loan, and if you choose this option you probably won’t need to give a deposit. If you don’t have a good credit score, car finance would likely be cheaper than an unsecured loan. It’s also worth remembering car value decreases over time, so you might lose money over time if you’re taking out a loan. This isn’t often the case if you’re using car finance as you will be returning the car at the end of the contract in some cases.
If you end up going for PCP car finance you will be limited to a specific number of miles you can drive and there will also be other conditions. These kinds of rules don’t apply if you’re using a loan, you will be the one responsible for any car modifications and you are free to drive as many miles as you like.
Now you know the difference between car loans and car finance you will be able to decide if you need to use either in the future. It will all be down to you to decide on the most effective way to finance your new car. There are pros and cons of using both loans and finance, but most people don’t have cash upfront so you are not alone.
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