It used to be that if you wanted to buy a car, you would start by getting your cash together while browsing the ad pages of your local newspaper.
Then habits changed to going to the dealer, setting your heart on a car and asking the dealer to get you finance. This sometimes came with disappointment.
This is becoming old-fashioned as consumers have more options open to them and can access all of the market options thanks to the internet.
Now you’re just as likely to drive a car that you don’t own as you are to buy one outright. This is because of the popularity of car finance schemes, which could give you the ability to get your dream car without having to save up the full amount to buy it outright.
While this may sound like the ideal solution to getting your next car, there are a few things to think about before you start applying for finance or setting your heart on a new car.
The most important thing to think about when you’re looking into car finance is to make sure you can afford it.
Do the sums from your income and outgoings to come up with a budget, then stick to it. After all, a new car might be nice but it’s more important that you can pay any existing mortgage and bills. Think about whether your circumstances might change in the future, and whether this could affect your ability to pay.
Choosing the kind of car you want is the first step to working out what kind of finance is right for you.
Whether you want a shiny nearly-new Nissan QASHQAI or a more modest second-hand Fiat 500, your choice may dictate the kind of finance that’s open to you. The more you borrow, for example, the more your options could be limited to different lenders having different maximum loan amounts. The same goes for small balances. Admiral for example have a minimum limit of £1,000 and a maximum of £35,000.
For a car purchase over £35,000 you won’t be able to take out an Admiral loan and you may be unlikely to take out another personal loan, for example, and some PCP or HP schemes may not be available to you.
If you’re unsure what kind of car you need, read our handy guide to help you figure things out.
With Admiral, depending on the car you choose and your circumstances, you may be able to choose from three finance options. Other lenders have different options too, such as leasing.
A Personal Contract Purchase is secured car finance.
You may need to pay a deposit to the dealer, then the lender pays the loan amount to the dealership. You repay the loan by making monthly repayments for a set period.
At the end of the agreement, if you decide you want to keep the car, you need to pay a ‘balloon payment’. This covers the cost of the vehicle and transfers ownership from the finance company to you.
There are a few conditions attached to this, for example the number of miles the car has done and its condition. The car must be in an acceptable condition otherwise you may be charged a refurbishment fee. If you have exceeded the number of miles you agreed at the start of your contract, you may be charged a certain amount per excess mile.
With many car finance lenders you could exchange your car at the end of the term for a new vehicle, start a new contract and continue paying monthly.
Hire purchase is secured car finance, meaning that the lender owns the car. They pay the loan amount direct to the dealership, and then you pay monthly repayments to the lender. Once you have repaid the total balance, you own the car.
It’s a very simple loan with no balloon payment, so the monthly repayments tend to be higher than a PCP but you know that all your payments are the same over the full term of the agreement and once they’re all paid, the car is then legally yours.
Admiral Car Finance asks you to pay an additional £1 purchase fee, but some car finance providers may charge a different purchase fee or none at all.
Finally, another option to consider is an unsecured personal loan.
This involves no deposit and works in the same way as other loans in that you pay a fixed monthly amount for the duration.
Read more on the different types of car finance that you could access with our guide.
If you do decide apply to PCP, you’ll have to keep an eye on your mileage. When applying, you’ll have to estimate how many miles you’ll use each year and agree a maximum with the lender.
At the end of the agreement if you want to hand the car back, you’ll be liable to pay a certain amount back per mile to the lender at the end of the contract.
This could add up to a lot, so before you apply take a look back at your average mileage and estimate how much you might need.
On the other hand, significantly over estimating your mileage could reduce the balloon amount but push your monthly payments up.
If you’ve done the sums and found a car you love, your next stop could be us.
With Admiral Car Finance, may be able to choose from PCP, HP, or a personal loan. Once your credit record has been checked, we may be able to offer the right rate and terms for your car, depending on your personal circumstances and the amount you want to borrow.
We offer a no-obligation quote - which won't impact your credit rating - and which can confirm your eligibility for Admiral Car Finance and give you an indication of the rate we can offer you, subject to affordability, fraud and vehicle criteria checks.
If you think your credit rating needs improving before you can get a loan, we’ve got six tips to help you get it healthy.