New car finance market hits £3.3bn, but why is it so popular?


According to data from the Finance and Leasing Association (FLA), in March 2019 the new car finance market was worth a whopping £3.3 billion! With more people than ever choosing to get their next car on some sort of credit or finance. Despite car sales taking a negative hit in 2018, it has not damaged the worth of the vehicle finance market. 82% of new cars in the UK are currently bought on a Personal Contract Purchase (PCP) deal and with numbers expected to rise in the next few years, why are people choosing to lease or finance their next car?

Multiple car finance options available

There are many ways in which you can finance your next car. In the UK, there are 3 main types of car finance agreements available to applicants. These typically tend to be Personal Contract Purchase, a Personal Loan option and Hire Purchase.

Each are quite similar but do have different terms and conditions and you can choose which one is right for you.

Personal Loan
A personal loan can be used for pretty much anything and it’s also a great way to fund your next car. Because you have used the money from your loan to buy a car outright, you are automatically the legal owner of the car. Within a personal loan agreement, you will borrow the amount needed to purchase the car you want and then make payments each month to a fixed term and interest rate.

Hire Purchase

Within a Hire Purchase (HP) agreement, you are in theory hiring the car from a finance lender. You can choose whether to put down a deposit, which can lower your monthly payments. You then pay back your loan each month to a fixed term and interest rate. You will become the automatic owner of the vehicle once you have made all the payments on time and in full at the end of your agreement.

Personal Contract Purchase

A Personal Contract Purchase (PCP) agreement is similar to Hire Purchase as you can choose to put a deposit down and then make agreed monthly payments over a set amount of time. However, at the end of a PCP agreement, you usually have three options. You can hand the car back to the dealer, use the value of the car as a deposit on your next car or pay off the Guaranteed Minimum Future Value (GMFV) and take ownership of the car.

More accessible for all

It is a common myth that car finance is only offered to those with good credit scores. Having a better credit score can improve the interest rate you are offered by potential lenders.

A good credit score indicates that you have a strong history of being able to pay back any debts on time and in full. You may be worried about applying for car finance with bad credit, however the current finance market has more options for people with lower credit scores and different personal situations. For example, self employed applicants may struggle to get finance as they can’t always prove their monthly income. However, car finance is becoming more accessible for everyone and lenders now tend to look at current affordability rather than your financial history.

Makes newer cars more affordable

It’s not very common that people have the sort of disposable income to buy their next car outright, especially if you want something that is new or only a few years old. Car finance enables consumers to pay for their next car in affordable chunks each month whilst also driving the car at the same time.

There are also many online tools such as a car finance calculator which lets you work out your affordability and check how much you could borrow for a car loan before you even apply for car finance. When working out your car finance affordability, you should factor in other motoring costs such as car insurance, breakdown cover, road tax, maintenance costs, unexpected repairs and fuel costs.

Get the car you really want

Another common car finance myth is that you can only get car finance on new cars. However, this is not true. Many dealerships and online car finance brokers offer deals for both new and used vehicles, so you can get the car you really want.

There are advantages to financing both new and used cars. As used cars are older, they tend to be lower in price which can mean lower monthly payments or shorter terms. New car finance deals can benefit from special rates such as 0% APR for ‘X’ amount of months, depending on the manufacturer and can sometimes benefit from lower interest rates.


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