Car finance explained

Car Finance

Car finance is a way of paying for a vehicle over time, with an arrangement of making repayments. There are different types of car finance options available, but most require a deposit followed by monthly repayments.

Find out how our car finance works

Benefits of Car Finance

Car finance allows you to spread the cost of buying a car or vehicle over a chosen payback period, so it’s a great way to get yourself a set of wheels without needing to save up a large sum of money up front.

Car finance is usually spread over a 24 – 60-month period. In most cases, the longer the amount of time, the lower the monthly repayments, so you can choose a length of time you can afford. Find out the monthly repayments you could expect with us using our car finance calculator.

What is APR?

APR stands for Annual Percentage Rate, which is a way of measuring the interest rate of your finance agreement. When taking out car finance, this is usually included in your monthly repayments.

APR is calculated using different factors, including:

• The interest rate
• Set-up fees
• When it’s charged i.e. monthly or yearly
• The initial deposit amount

Car Finance Eligibility

There are many factors to consider when seeing if you’re eligible for car finance, including your age, income and affordability. Our application process is simple, so you can find out if you’re eligible for car finance today find out more about our application process.

What if I have poor credit?

At Moneybarn, we look beyond your credit score, to help you find the vehicle you need. Find out more about our bad credit car finance, or see what repayments you could expect using our car finance calculator.

Car finance options

When it comes to car finance there are lots of different types of finance available, it’s important to understand your options and how they differ so you can find one suited to you. Below we list the most common types of car finance

• Conditional Sale
• Hire Purchase (HP)
• Personal Contract Purchase (PCP)
• Personal Loan
• Lease Loan

Deposits

It’s important to fully understand the terms and conditions and all of the costs before you sign the finance agreement. One way for you to lower your monthly repayments is by putting a deposit down on the car, which lowers the total amount of finance that you borrow. A car or van deposit can help to make your finance more affordable and ensure that you can get a car that really suits your needs. Zero deposit is when you haven’t got a cash deposit, or you may prefer not to put a deposit down.

Conditional Sale

Moneybarn uses a conditional sale agreement for car, motorbike and van finance. A conditional sale agreement means that you will have full use of the vehicle for the term of the agreement and it will be registered in your name; however, you will not own the vehicle until all repayments are made.

Once Moneybarn has approved a finance application, the next step in the process is to find the car or van that’s right for you. This allows us to create a quote for you which shows exactly how much the agreement will cost you on a monthly basis and in total.

Advantages of Conditional Sale

• You won’t need to pay a large sum up front, or a lump sum at the end of the finance agreement
• Payments are fixed for the duration of the agreement period
• You don’t need to pay a ‘option to purchase’ fee like you do with hire purchase
• You can decide to hand the vehicle back once you’ve paid back half of the repayable amount, if you opt for Voluntary Termination

Disadvantages of Conditional Sale

• The finance agreement is secured against the vehicle, so if you don’t meet your monthly repayments, your vehicle could be repossessed
• Monthly repayments can sometimes be higher in comparison to other finance options

What is Hire Purchase?

Hire purchase (HP) is when you essentially hire the car from the lender until it’s been paid for in full. You can then pay a final fee which is referred to as the ‘option to purchase’ fee to own the car outright. This cost can vary but is usually around £100-£200. You’ll officially own the vehicle once all repayments are made and you’ve paid the option to purchase fee.

Advantages of Hire Purchase

• You won’t need to pay a large sum up front, or a lump sum at the end of the finance agreement
• You can decide to hand the vehicle back once you’ve paid back half of the repayable amount, if you opt for Voluntary Termination
• Payments are fixed for the duration of the agreement period

Disadvantages of Hire Purchase

• The finance agreement is secured against the vehicle, so if you don’t meet your monthly repayments, your vehicle could be repossessed
• Monthly repayments can sometimes be higher in comparison to other finance options

What is a Personal Contract Purchase?

Personal contract purchase (PCP) is where you pay a deposit followed by repayments, however at the end of the agreement you’ll have the option to either hand back the car or take over the ownership. If you wish to keep the vehicle, you’ll need to pay the Guaranteed Minimum Future Value fee. If you choose to hand back the vehicle you can use the equity as a deposit for your next vehicle.

Advantages of PCP

• Gives you flexibility at the end of the agreement to keep the vehicle
• The monthly repayments tend to be lower than other finance options

Disadvantages of PCP

• Usually there’s a maximum mileage limit, and you could be charged if you exceed it.
• You’ll need to pay interest on the Guaranteed Minimum Future Value even if you do not keep the vehicle at the end of the agreement

What is a personal loan?

A personal loan allows you to borrow an amount of money which you can then use to purchase a car.

Advantages of a personal loan

• You’ll own the vehicle as soon as the car dealer receives the money for it
• You can use a personal loan to buy a car from any dealer or private buyer

Disadvantages of a personal loan

• If you have bad credit, you’ll be unlikely to be accepted for a personal loan
• You may not get vehicle checks included, which you would usually receive with a PCP or HP agreement

What is car leasing?

Car leasing is a long-term rental of a vehicle. If you choose to lease, you’ll have to hand back the car at the end of the lease term. In a typical lease agreement, you’ll pay a deposit or initial repayment followed by fixed repayments over time.

Advantages of car leasing

• You won’t have to worry about the depreciation in value of a vehicle as you do not own it

Disadvantages of car leasing

• You could have to pay additional charges if the vehicle doesn’t meet the lender’s expectations
• If you no longer want the vehicle, or can’t keep up with the payments, you’ll have to pay a large cancellation charge