The Pros & Cons Of Car Finance

New cars can be pricey, and financing has unlocked the door for thousands of would-be car owners, allowing them to get their hands on the perfect set of wheels – without having to cough up a large sum of money all at once. Instead, financing allows you to spread the cost, get more car for your money, and can even build your credit.

If you are on the hunt for a new car and are considering using finance to make your purchase, we took a closer look at the pros and cons of this option – read on for all you need to know.

What Is Car Finance?

Car finance is a type of loan that allows you to purchase a car without paying the full amount upfront. Instead, you can spread out the cost over a period of time, with monthly payments being made until the loan is paid off. This makes it easier for people to afford cars that they may not have been able to otherwise, and it can also help to build credit if payments are made on time.

Checking your credit score and history is also a good idea before applying, as this can affect your chances of being accepted and the interest rate you’re offered. It’s important to know what National Loans’ and other lenders’ minimum credit score requirements are and, if necessary, take steps to raise your credit score. Learn more here.

There are three main types of car finance, and these are:

1. Hire Purchase

This is the most common type of car finance, and it involves paying a deposit upfront, followed by monthly payments, until the loan is paid off.

2. Personal Contract Purchase (PCP)

This type of car finance allows you to pay a lower deposit than a hire purchase, but you will have to make higher monthly payments. At the end of the loan term, you can either pay the remaining balance or return the car.

3. Lease Purchase

This type of car finance is similar to a hire purchase, but you will have to make a larger deposit upfront and lower monthly payments. At the end of the loan term, you will own the car outright.

The type of car finance you choose will ultimately depend on your budget and needs. It’s important to shop around and compare different deals before committing to one, as this will help you get the best deal possible.

Pros Of Car Finance

So, just what are the advantages of opting for car finance? Here are a few of the pros:

• Lower Monthly Payments

One of the biggest advantages of car finance is that it allows you to spread out the cost of your vehicle over a longer period, resulting in lower monthly payments and eliminating the need to find a huge lump sum to purchase your car, making it easier to budget for and manage your finances.

• Flexible Payment Options

Car finance also offers more flexible payment options than other methods, such as cash or credit cards. You can choose to pay off your loan in full or make smaller payments over a longer period of time.

• Build Credit

Financing a car can also have an unexpected benefit, as it can help you build credit – this will be the case as long as you make all of your payments on time and in full. This can be beneficial if you’re looking to purchase a home or other large purchases in the future, as you can start to get on the good credit list with a relatively small car loan.

• More Choice of Cars

Financing a car gives you access to more cars than you would otherwise be able to afford. This means you can get the car of your dreams without having to break the bank, as you will have longer to pay off the loan.

• Maintain A Monthly Budget

Car finance also allows you to maintain a monthly budget, as you will know exactly how much you need to pay each month. This makes it easier to plan for other expenses and ensure that your finances are in order.

Cons Of Car Finance

As with any financial investment, it is important to be aware of the cons of obtaining car finance, and some of the main things to be aware of include:

• High Interest Rates

One of the biggest drawbacks of car finance is that it often comes with high interest rates, which can add up over time and make your loan more expensive than you initially thought. It’s important to shop around for the best deal before committing to a loan, as this will help you save money in the long run.

• Long-Term Commitment

Another disadvantage of car finance is that it requires a long-term commitment, as you will be paying off the loan for several years. This means that if your circumstances change and you need to get out of the loan, you may have to pay hefty fees or penalties.

• Risk of Defaulting

As with any finance, there is always the risk that you could default on your car loan, which could have serious consequences. This is why it’s important to make sure that you can afford the payments before taking out a car loan.

• Limited Negotiation Power

When you finance a car, you may not have as much negotiation power as you would if you were paying in cash. This is because the dealership will be more likely to offer discounts and incentives to those who are paying in cash rather than those who are financing their purchase, and this may mean that you pay more for your vehicle.

• Additional Fees

Finally, it’s important to be aware of any additional fees that may be associated with car finance. These can include processing fees, late payment fees and other charges that can add up over time. It’s important to read the fine print before signing any loan agreement so that you know exactly what you’re getting into.

Final Thoughts

Car finance can be a great way to purchase a car without having to pay the full amount upfront. However, it’s important to be aware of the pros and cons before taking out a loan, as this will help you make an informed decision. Make sure that you read the fine print and understand all of the fees associated with car finance before signing any agreement and that you can afford the monthly payments.

Ready to go? Then check out the best car finance in Essex as available through LMC Cars and other reputable garages and dealers, and prepare to drive away in style.