Vehicle Finance

A financial lease lets you use the vehicle as your own, without owning it. You pay monthly installments over a specified repayment period (up to 84 months), and once the lease is up, you have the option of owning or returning it.

How does car finance work?

The cost of a new car must be covered by borrowing money from a lender, regardless of the type of car finance you choose. In the UK, there are different types of car financing available to purchase a new car or one that's been pre-owned, but it's important to consult the dealer and creditor first.

• Car loans: The cheapest way to borrow money for a car is to take out a personal loan if you are unable to buy it outright. Depending upon your credit score and ability to secure a low-rate loan, this may be possible. You can choose to borrow a certain amount and how long you want to borrow it. Upon approval, the funds will be transferred directly to your account so that you can buy the car - either from a private seller or from a dealership. The loan will then be repaid in installments.

• Personal contract purchase: When purchasing a car, you make a small deposit and take out a loan at the beginning to pay for depreciation. Once the monthly payments with interest are completed, you will then have to decide whether to trade the car in for another one, give the car back to the dealer and walk away, or make one final payment to keep the car.

• Hire purchase: A hire purchase agreement requires you to make monthly payments for hiring the car, which includes the loan and interest. A 10% deposit is typically required, but typically the bigger your deposit, the better your financing terms. Once you've made the final payment, the car is yours. Usually, you have the option of choosing a repayment period of up to five years.

• Personal contract hire: PCH or car leasing is a method of renting a new car for a period of several years before returning it. As well as making monthly payments, you usually have to deposit money and pay interest. As part of your deal, you can also purchase service plans to ensure you return the vehicle in good condition and avoid paying fines.

Which car finance option is the best for me?

This will depend on personal preference and ultimately, your financial situation. However, there are a few things you can consider:

• Are you interested in a new car or a used car?
• How is your credit score doing?
• Would you prefer to have a higher monthly repayment but own your car outright?
• Would you be interested in selling your car at the end of your deal?
• How do you plan on using your car?