The auto loan market is growing at a rapid speed; the top finance companies on the earth are providing financial services to customers who are looking to purchase, finance, or lease a vehicle in 2024.
Car finance companies will give you a loan by which you can purchase a car.
There are various car finance companies in the UK, different finance companies focus on a particular area of the finance market some finance companies provide loans to an individual who has poor credit whereas others focus on good or excellent credit.
How does car finance work?
Car finance companies or lenders lend you the money that is needed to purchase a car. They may be larger parts of the bank or the manufacturing company. Although some of them are independent organizations.
You can apply through a dealer, a broker, or online, and the finance company will agree to the loan with you. The finance company also owns the car until all the payments are made according to the agreement.
Various car finance companies across the UK focus on a particular area of the car finance market. Some finance companies help customers with poor credit whereas others go with good and excellent credit.
What are the main types of car finance?
If you’re thinking about buying a car, you’ll need to come up with a way to finance the purchase. There are a few different ways to finance a car, and each has its benefits and drawbacks.
There are different ways to pay for a car in finance. Some of the types of car finance in the UK are:
Hire Purchase:
A hire purchase means you are hiring a car from the lender until you have paid the amount in full. The loan is secured against the vehicle; you won’t become the owner until you have made the final payments. It is the most popular form of car finance.
In this form of vehicle finance, you can choose whether to pay upfront – that is monthly payments over an agreed period. Once all the agreed monthly payments have been made then the vehicle will legally belong to you. At any point in the term, you can choose to pay off the outstanding finance by requesting the lender for settlement.
Personal Contract Purchase:
A personal contract purchase is almost similar to a hire purchase; in this form of finance, you will have the choice to pay a deposit followed by fixed monthly payments over a fixed period. This term is typically 24-48 months.
PCP loans can be the most complex form of car finance. In this form of finance, you won’t purchase the car outright; instead, you have to put down a nonrefundable amount to the lenders and the rest will be borrowed by you.
Then you have to cover the monthly payments according to the interest rate and the cost of depreciation.
Personal loan:
In this form of loan, you can borrow an amount of money over a fixed period. If you think to take a personal loan to purchase a vehicle, you will be the owner of that vehicle at the time the dealer receives the payments.
A personal loan is not secured against your vehicle; it means at any point in time you can sell the vehicle without taking prior permission from the finance company.
Guarantor loan:
A guarantor loan is provided when an individual with poor credit wants to take out the agreement. This involves a third party acting as a guarantor who may be any relative or friend.
If at any point in the period you fail to repay the loan then the guarantor needs subsequently pay the monthly payments on your behalf.
How to get the car financed?
There are 5 steps to getting your car financed by a finance company. The steps are as follows:
Establish your demands:
There are different car financing companies available in the market with different available facilities. So, different types of finance companies will suit different kinds of individuals as per the requirements. At first, you should establish all your requirements by asking yourself some key questions.
Ask yourself what amount you can afford:
Car finance is made of different payment options; you should set up an amount that will be easy for you to pay.
You should go for that amount that you can afford so that you may not face penalties if you miss some of them. You may choose a higher monthly payment with a shorter period or a longer term with a shorter payment.
Plan which car finance is for you:
There are several kinds of car finance such as Hire purchase, personal contract purchase, personal loan, and guarantor loan. All of them contain affordable monthly payments with a specific period alongside interest.
Reach out to the appropriate car finance provider:
Now you have set the type of car finance; you can reach out to the appropriate car finance provider. Many of them have the facility to apply for a loan online to determine whether you are eligible for car finance or not.
We can make things easier by comparing the terms and conditions across our large network of trusted lenders.
How to choose the best car finance?
Purchasing a car becomes easier this time as there are various car finance companies available in the market with different types of financing schemes. You should follow the right approach to choose an appropriate car financing company. Therefore here we have prepared some following points to keep in mind at the time of picking a car financer:
Take a check on your credit score:
You can track your credit scores if you have a good credit score then your chances of loan approval will become higher; you can check your credit score online before applying for a car loan.
Compare interest rate
Interest rate is an essential part that borrowers should consider while taking a car loan. You can compare the interest rate among multiple lenders and then you can choose the right one.
File your application online:
With the advent of technology in the present day, the whole process of applying for a loan is revolutionized.
An individual can easily file an application form for a car loan with simple eligibility criteria and documentation. Applying for a car loan is more hassle-free than offline.
Consider your income and affordability:
One of the most important parts of applying for a car loan is thinking about your income and then choosing the loan tenure.
You should choose a loan that meets your requirements and fits your budget. You can also use an EMI calculator to calculate your EMIs which will help you to plan for the loan very effectively.
Can I get car financing with bad credit?
If you score poor credit you should aim to fix your credit profile. You can manage it by clearing all the bills on time.
Your payment history builds 35% of your records and it is the most essential part to get a car loan. Even if you have a low credit score lenders will check your monthly income against your monthly expenses to check if you can afford the loan or not.
This will help the lender to issue a loan with what rate of interest. The higher the risk the more you have to pay in terms of repayments.
The lenders also look at how long you are working with the same company; this signals to them if you are secured with your current job or not.
These are the factors that will be checked by the lenders before providing you with a car loan instead of being a bad credit scorer.
7 top car financing companies-
Some of the top financing companies are:
1. Tesco car loan:
Tesco car loan is one of the most renowned finance companies in the UK. Tesco provides the car loan at a fixed rate of interest; so that you can know about the monthly payments.
This will help you to budget for your new purchase. Tesco loans are available ranging from 12 to 120 months.
There are no set-up costs and no hidden costs. You could have taken a 2-month optional payment break after purchasing.
2. HSBC car loan
HSBC bank provides car loans by discovering that many people are interested in buying their dream car but somehow they are financially unable to do so.
They provide car loans at an interest rate starting from 8% and the term of the loan is 48 months. Any individual can opt for this loan belonging to the age group 21-60 years.
They have charged a processing fee of 0.5% of the borrowed amount.
3. NatWest car loan
NatWest Bank is the most popular car loan provider in the UK. They provide car loans in amounts ranging from £1,000 to £50,000.
Loan tenure is from 1 to 8 years. They provide loans at a fixed rate of interest so you have to pay equal payments during your term. You will be the owner of the car from the very first day.
4. Barclays car loan
Barclays is a British investment bank and financial service provider. Barclays provide a car loan at a fixed rate of interest to any individual who wants to purchase a new or second-hand car.
A car loan can be availed easily with a good credit score.
5. Nationwide car loan
Most people may need extra money at any time in their lifetime. However many of them may not be qualified by the traditional banks to get such loans.
Nationwide provides auto loans at a fixed rate of interest and the loan is secured against your vehicle. If you currently have a car loan then Nationwide is there to provide you with a loan if you need it.
6. Santander car loan
Santander provides loans that may be used for any purpose by the loan taker. If you are a permanent resident of the UK your age is above 21 years old, and you have a fixed income of £7,500+ then you will be eligible by Santander to receive a loan.
The term of the loan will be 60 months and at a fixed rate of interest that is 3.1%.
7. Sainsbury car loan
Sainsbury’s bank provides you with a car loan at an interest rate starting from 3.4% APR the tenure of the loan is 1-7 years and you can borrow £7,500 – £25,000.
There are no application or processing charges. If you will be eligible to get the loan then you may receive your money within 2 hours of your application being sent. Their loan application is an easy and quick process.
FAQ:
What credit score is needed for car finance?
Ans: Different agencies in the UK use different scores but you will have better chances to get car finance if the credit score belongs to the ‘good’ category. That means a credit score of 760 or above will make you eligible to qualify for car financing.
Are car loans secured or unsecured?
Ans: a car loan may be secured or unsecured; if the car is put up as collateral then it will be counted as a secured loan. But if the lender has primarily considered the borrower’s credit score and financial situation then the loan will be considered an unsecured loan.
What type of car can I get on finance?
Ans: lenders such as banks and non-banking financial companies provide car finance to customers in the form of new and used car loans. From luxurious vehicles to hatchbacks, car loans are available for both commercial vehicles as well as passenger vehicles in the market.
Can I get a car loan with a temporary job?
Ans: The credit score is the most critical part that is assessed by the lenders while giving out car financing. If an individual with a temporary job has an impressive credit score then it will be easy for him to get a car loan even with the risks of a temporary job.
What do I do if I cannot afford the car finance repayments?
Ans: To deal with the situation you may first liquidate the loan through your funds or you can raise cash by taking personal loans. Then you can dispose of the car immediately with a suitable rate and pay off the personal loan immediately.
Which bank is best for financing a car?
Ans: HSBC, a UK-based provider of banking and financial services, is the most popular car financing bank. They provide car loans to the citizens of the UK and the interest rate starts from 8%, and the tenure of the loan is 48 months. They provide the loan at an amount of approx. 70% of the car value.
What is a good interest rate on car financing?
Ans: if you are looking for more conventional finance such as a PCP deal, and you possess an excellent credit score then you may be subject to payment of 6% to 11% APR otherwise you pay 12% APR.
Can I get a car loan with a 40k salary?
Ans: Yes. If your month-to-month pay is 40,000, your vehicle credit EMI ought not to be higher than 8,000. Notwithstanding, the client’s reliability likewise assumes a part in the credit qualification necessities. Assuming you have a brilliant credit score, moneylenders will be ready to give you enormous credits at modest loan fees.
Conclusion:
A lender’s job is to upsell you on a car, so before you start it’s important to assess how many repayments you can make every month. You should know how much debt you can afford every month against your income. Beyond this, start doing online research about different car financing agencies.
Purchasing a vehicle is an emotional experience. So, don’t take a burden on your shoulders sitting in a sales manager’s office. Inform them of the correct amount that you can pay on a car as EMIs. Last thing, don’t hesitate to ask all the relevant questions such as the monthly instalments, APR, term of the loan, etc. regarding the loan you opt for.
