The Different Types of Car Finance

Car finance lets you pay for a new or used car in instalments over a certain period of time. Instead of paying for the entire cost of the car at once, customers are allowed to get the car on finance and deposit money in monthly instalments. Many car sales rooms offer a range of finance products to suit all your preferences and requirements. A company who can offer you no deposit car finance will buy the car on your behalf and you will then pay them back. Sometimes there can be 0% interest deals, so it is worth thoroughly searching around the market before making a final decision. If you feel like getting a car loan is the right decision for you, then make sure you are aware of all of the different types of car finance before deciding what avenue of car finance you wish to go down.

Hire purchase

A hire purchase car finance is one of the most popular types of car finance and possibly the easiest type of car finance you can choose to use. Once you have chosen the car that seems right for you, you can decide how much you afford to pay as a deposit (if one is required), which is normally between 10% and 50%. You can then arrange a fixed rate of interest, which allows you to make fixed monthly payments between 12 and 60 months. This straightforward form of car finance has the benefit of allowing you to budget for your monthly payments without any fluctuating interest rates.

Hire purchase with balloon

This type of car finance is comparable to the hire purchase option, the biggest difference that you will find out is that you make smaller payments, and pay off the rest of the balance at the end of your term. You then have an amount of options at the end of the agreement, including car purchase, refinance, part-exchange or resale. The key benefit of this type of car finance is that you can choose a higher specification of vehicle due to the lower monthly payments.

Balanced payments plan

This type of car finance offers variable interest rates in line with the bank base or finance house base rate, if this is the type of thing that you are looking for, then a balanced payment plan is the right one for you. Of course, the interest rates will peak and trough over the period of the contract, which means that the interest rates you pay on your car will rise and fall with it. At the end of the agreement, you will settle the difference either as credit or as a charge. It is still very similar to the hire purchase car finance agreement, in terms of paying a deposit, then choosing fixed monthly instalments over an agreed term. You can also include a deferred balloon payment in this type of car finance plan.

Hopefully you now know what the difference car finance options are enough so you can make a decision on what one will be best for you. There is always more information that can be found on the internet, but the bare bones of what you need to know are above. Make sure to learn as much as you can before making any finance related decision as it can all make a huge difference to your quality of life and your savings.