If you’re looking for a new car but want to remain within a budget, then car finance may be the solution you’re looking for.
When getting car finance there are some things you need to consider, such as the budget you’re working with and what sort of car may be best for your financial circumstances.
If you’re applying for car finance and are unsure about where to start, we’ll take you through the things you need to consider and how it can help you get what you need without exceeding your budget.
Budget and deposit
One of the most important things to consider when getting car finance is your budget, this will help you to work out how long you should take finance for and the sort of car that will fit your financial needs.
When deciding your budget, you should consider your current financial commitments including your bills and any current debts. You should already have an understanding of your finances after these things are subtracted from your monthly income, but if you don’t, it would be worth while taking the time to work this out.
Your deposit can impact not only the amount that you will have to pay each month, as well as potentially opening up your application to more lenders as you’ll be borrowing less. A bigger deposit could also help to lower the interest paid overall, as well as lowering your monthly payments.
If you would like an estimate of your monthly payments, you can use a car finance calculator to do so. This will use information such as deposit amount and term time to calculate how much you’ll need to pay monthly.
Picking the right car finance for you
The right car finance for you depends on what you want at the end of your agreement. There are multiple options when it comes to car finance, but ultimately deciding which is best for you depends on the outcome you’re looking for.
Bank loan – this is when you get a personal loan from the bank and then use it to pay for the car. You then own the car outright and will pay the bank back over an agreed period of time. As this is an unsecured loan, it is typically more difficult for people to get unless their credit score is in good standing.
Hire purchase (HP) – A hire purchase has the end goal of ownership, but it’s not quite like a bank loan as you don’t own the car until you have finished repayments. It starts with a deposit, followed by monthly instalments over an agreed period of time – at the end of this you’ll own the car.
Whilst in this agreement, there are no mileage limits or restrictions on what you can do to the car (such as wear and tear, customisation) , as you aren’t returning the car to the lender.
Personal contract purchase (PCP) – Similar in structure to hire purchase, you start with a deposit and follow it with monthly payments over an agreed time. Unlike HP finance however, you have the choice to return the car, trade it in and upgrade to a new car, or to pay a lump sum and keep the car.
Whilst in this agreement you will be subject to mileage restrictions so you should consider your annual mileage as this is something that will be agreed on with your lender. You will also have to ensure that the car is in good condition and remove any customisation that may be done to it. This is because you will return the car to the lender if you choose not to keep it.
Choosing the right car to suit your budget
When choosing your car, you should consider your budget and whether a used car may be the beneficial for you in terms of fuel efficiency and affordable insurance.
Buying a used car with some mileage can be cheaper than buying a new one on finance. Used car finance is popular as it often is a lower purchase price and can mean less deprecation down the road as most cars lose their value in the first few years.
Used car finance is affordable car finance that stays within your budget. Finance wise, this is a good option for those who wish to remain in a budget and look for lower insurance rates and is something you should consider if this is your end goal.
Final thoughts
Car finance can work within a budget, as long as you know what that budget is and the sort of outcome you want from your finance deal, car finance is a good option to help you get your new car.
When working within a budget there are some things to consider, such as insurance, fuel efficiency, and if a used car may be cheaper for you.
Whatever you’re looking for, there is a car finance option out there.
