Shifting car finance up a gear

What is Car Finance?

While you may have heard of car finance, if you’ve never looked into it or applied before, you may be unfamiliar with how vehicle loans work. The main thing to remember is that car finance can be incredibly flexible - there are a number of different options available, and you should be able to find a solution that meets your needs. 

Car finance is essentially a way to buy a vehicle without having to cover the cost outright. It’s not always easy to save up to purchase a car, especially if you want a newer, more reliable model. Vehicle finance is a similar process to getting a mortgage - you can spread your repayments through a secured loan. This means that the loan is secured against some form of collateral - in the case of a mortgage, this would be your home, and with car finance, it would be your vehicle.

Secured loans can be easier to access than other types of credit, but it is important to remember that if the loan is defaulted on, the lender has the option of repossessing your collateral. Secured loans can be a good option for people with bad credit, as lenders take on less risk with these sorts of loans.

There are two main options when it comes to vehicle financing. These are hire purchase and personal contract purchase - we’ve outlined both in more detail below:

Hire Purchase (HP)

With a hire purchase agreement, you’d generally make an initial deposit, and then fixed monthly payments. HP works in a similar way to any other type of loan, in that you’re spreading the cost of a purchase, along with any interest applied, over a longer period of time. And once the agreement comes to an end with HP, you’ll own the car outright. 

Personal Contract Purchase (PCP)

PCP works a little differently to hire purchase. Although you’d also be making monthly instalments, these would not be going towards the cost of the vehicle, but the car’s depreciation. Throughout the agreement, you’ll be paying the difference between the initial sale price of the vehicle and its estimated worth at the end of the contract. 

At the end of your term, you can then choose one of three options. You can buy the car by making a balloon payment (which will be the estimated value of the vehicle after depreciation), enter into a new PCP arrangement, or walk away entirely. 

Bad Credit Car Finance

Many UK lenders understand that not everyone has a perfect credit score, and that getting a car on finance isn’t always easy for those with a poor credit history. That’s why specialist bad credit car finance lenders exist - they want to help people seeking a car loan get access to the money they need.

Here at Wheelie Good Finance, we work with a number of lenders who will consider your application, even if you have a low credit rating. Things like your affordability, which will mostly be determined by your income and expenditure, will also be looked at, not just your credit history. 

For more information on bad credit car finance, you can check out our bad credit guides, which explore things like CCJ and IVA vehicle finance. Here, you’ll also find helpful tips on how to improve your credit rating.