Suman Patel, content writer
Passing your driving test and buying your first car is a huge milestone in your life – but finding the funds to purchase a car can be difficult, especially if you’re a young driver. Thankfully, car finance could can help. You can choose from various lenders and conditions to suit you, whether you’re looking to own a new car without putting down a deposit, or you’re looking for car finance bad credit, there is an option to suit everyone. There are various types of car finance to choose from, so read on as we take a closer look at some of the most common types, and the top 3 benefits that come with choosing finance to help you own your first car.
Car finance: How does it work?
Applying for car finance is one of the best ways of owning your first car, and it comes with many benefits – but it helps to know a little bit more about how it works and the various types of car finance that you could can choose from. When you apply for a type of car finance, you are entering into a credit agreement with your chosen lender. They set the conditions for the agreement, and you choose which works best for you. You will then need to pay a sum of money towards the car each month. Here are the types of car finance that you may will be able to choose from.
- Hire Purchase: With this type of finance, an initial deposit would may be required, and after that, you would need to make fixed monthly payments. Until you make the final agreed payment, you are only hiring the car. When the last payment is made, you own the vehicle.
- PCP: A personal contract purchase requires you to place a deposit, and then pay fixed monthly payments. This type of finance agreement allows for flexibility at the end of your contract, meaning you can either pay the value of the car and keep it, you can exchange the car for another, newer model, or you can give the car back to your chosen supplier.
- Leasing: With this type of finance, you never actually own the car. You make payments to rent it over a period stated by your lender, and then at the end of the period, you can choose another car. Hire fees are usually featured in this agreement to cover depreciation.
Why choose finance for your first car?
There are a few reasons why finance may be one of the best options when it comes to owning your first car. When you’re young, passing your driving test is an exciting time, and getting your first car is a real milestone, but you may not have a lump sum that you can spend on a vehicle. If you’ve learned to drive later in life, it can also be difficult – especially with the rising cost of living – to save enough cash to buy a car outright. This is where car finance comes in. Here are 3 benefits that come with taking out car finance to help you with your first car.
Fixed monthly payment
Choosing car finance to help you own a car means that you can benefit from knowing exactly how much you’ll have to pay each month. The amount of money you pay back to your lender in finance repayments each month depends on a couple of things – how much money you have to put down as a deposit, and how much the car costs in total. The bigger deposit that you put down, the more likely it is that your monthly payments will become less. If the car that you choose is an expensive, new model, you will be looking at higher monthly payments, so try and choose a vehicle that you will be able to afford. When entering into entering your car finance contract, you may will be given a fixed monthly payment, so you can budget for this each month.
Build credit score
Choosing car finance could can help you to build a good credit score when you make payments on time. Your credit score follows you throughout your life and allows lenders to see how creditworthy you are based on the number that you score. The higher it is, the better you are at paying off your debts. If your credit score is low, it shows lenders you may have had trouble making repayments in the past – making you more of a risk. Various factors have an impact on your credit score – if you have a credit card, making sure that you make your repayments on time and in full is essential, and if you have loans that require a monthly payment, keeping up to date with them means your credit score will benefit.
Because your car finance is another monthly payment, making sure that your income can cover the costs is essential. You can build a good credit score by paying the required amount in full each month, to put you in a better position if you ever need to take out additional finance in the future.
If you were to buy a car outright, you would need a lump sum of cash saved – because of this, many of us choose one of the above options to help us own a car if we don’t have a pot of savings to pay for it. This is another reason why choosing finance for your first car could be advantageous. If you are a young driver that has recently passed their test, you may not have the savings available to purchase your own car. Some finance options don’t require any deposit, whereas others may require around 10% - but you can do a bit of research to find a lender that is suitable for your needs. With just a small amount of cash, you could can have access to a new car – it’s as easy as that.