The most suitable car finance, of course, is the finance arrangement that most suits your own individual needs and circumstances. No one size fits all, so you need to think about the means at your disposal and the type of car you want – for example, whether you want to own it outright straight away, put off ownership until a later date, or simply lease the vehicle, with no intention of buying it at all.
Your credit history
When financing a car (or any other vehicle), your personal credit history is also an important factor. The arrangement you choose relies on a lender extending credit to you, so there is a need to check how you have managed credit in the past and demonstrated your ability to manage the debts of past credit agreements.
This is information recorded by the UK’s main credit reference agencies – Experian, Equifax and CallCredit – to whom any lender is going to refer when deciding whether or not to advance you further credit.
The lender’s decision whether or not to extend credit is also recorded in your credit history and any rejection of your application results in a negative score. For that reason, and in order to preserve your current credit rating and avoid it being negatively affected, it is important to apply for credit only when you have a reasonable expectation of receiving a favourable reply.
This is something you might find difficult to assess. If you draw on the services of an independent car finance broker, however, you are likely to find that a “soft search” or “quotation search” is made by the broker in advance of any formal application on your part for the necessary credit.
This involves a snap-shot view of your personal circumstances and the information you have provided to the broker, that does not leave a footprint on your credit file.
This is especially important if you already have bad credit – evidenced by past bankruptcies, County Court Judgments (CCJs), Individual Voluntary Arrangements (IVAs), or Debt Management plans, for example.
Even from such an apparently unpromising start, however, an independent broker may be able to identify those lenders still prepared to extend the car finance you are seeking.
Many car finance plans rely on your having a deposit to put down as part of the purchase.
A car finance broker, however, may also help to identify those lenders where no such deposit is required.
Against this background, your choice of suitable finance is likely to be influenced by whether you want to purchase the car straight away, delay the purchase or simply lease the vehicle.
If it is important to make an immediate, outright purchase, for example, the appropriate form of finance may be a personal loan (either secured or unsecured).
If you already have a deposit and want to buy the vehicle in instalments, delaying ownership of the car until you have made the final payment, a hire purchase agreement may be appropriate.
If you have a deposit, but have not yet decided whether you finally want to own the car (or hand it back to the finance company), a Personal Contract Purchase (PCP) represents a way of reducing the monthly repayments, but delaying whether or not to take ownership of the car through a final “balloon” payment at the end of the contract period.
If you have no intention of owning the vehicle, but are content to enter into a medium-term lease agreement Personal Contract Hire (PCH) may be the option for you.