How Does Car Finance Work?
How Does Car Finance Work?
A car is a large purchase and a finance agreement can not only make that purchase affordable, but it can also give you access to better vehicles with higher specifications and more features. If you are new to car finance, it may seem complex, which is why Car Synergy has created this brief guide to the basics of how it all works.
Car finance enables you to spread the cost of your vehicle over the course of a set number of months. A credit lender will provide payment for the car you wish to purchase, and you will pay this back in installments. We provide three main types of used car finance in Leeds at Car Synergy which are hire purchase and personal contract purchase. Each of these involve an initial deposit, followed by monthly payments but they differ in a number of ways.
Initial Deposit
Most finance plans require a one-off upfront payment to secure the vehicle which is deducted from the value of your vehicle and is interest free. With Car Synergy, you can adjust your deposit amount to suit you. Increasing it will lower your monthly payments, while decreasing your deposit will increase the payments.
Monthly Installments
After paying the deposit, you’ll be able to drive away in the car. A payment will then be due each month for the duration of your agreement term and the amount of each installment will depend on the type of finance that you choose.
Types of Car Finance
The type of car finance that you opt for will determine the cost of your monthly repayments and what happens at the end of the agreement.
Hire Purchase
A hire purchase (HP) agreement is ideal if you want to keep the car after the contract period, because once all of your repayments are made, ownership of the vehicle will be transferred from the finance provider to you. Your monthly installment amount will simply be the total value of the car divided by the number of months in your agreement.
Personal Contract Purchase
With personal contract purchase (PCP) you will have the option to choose whether to keep or return the vehicle after the agreement period ends. Your monthly payments will be calculated based on the assumption that you will return the car, which means that they will cover the vehicle’s depreciation while in your possession, and will be lower than HP payments. If you decide to keep the car at the end of the agreement, you will need to make a balloon payment, which will be the difference between its original value and sum of your deposit and monthly payments.
Applying for Finance
To apply for finance and find out how much you are eligible to borrow for your vehicle purchase, complete the online car finance application process on our website and the Car Synergy team will be in touch with your offers. If you have any queries regarding car finance agreements, don’t hesitate to give us a call and our in-house experts will be happy to help answer your questions.