Bank and building society loans

As with any loan, you must satisfy the lender you are able to pay it back.

The bank or building society will carry out a credit check before agreeing to the loan.

Interest rates for loans will generally be similar between lenders, however, it is worth shopping around to get the best deal on APR (annual percentage rate). .Check the small print of any loan contract before you sign up and make sure you are aware of any hidden costs or penalties.

The total amount you payback, i.e. capital and interest will depend upon how long you intend to take to pay back the loan. The longer you take to repay the loan, the more you will pay back, because of the monthly interest accrual.

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Car dealer finance

The main advantage of financing a car through a manufacturer or dealer is due to the fact that it is it is secured against the car (you do not own the car while you are paying for it). This means that the amount you borrow can be higher. Competition between manufacturers and dealers means that you should be able to get a good rate.

You must keep up payments, or you risk losing the car.

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Hire purchase

Higher purchase is similar in many ways to a personal loan, however, you do not own the car until you have paid the final instalment.

The finance company is able to take the car back if you do not keep up repayments.

This can be a cheap way to borrow money and if you dont have a good credit history, you are more likely to have your application accepted compared to the other methods of car finance.

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PCP

With a Personal contract purchases (PCP), you pay a deposit then commit to pay a set number of low monthly payments for up to three years. The low monthly payments mean that you will not have paid off the full value of the car, so at the end of this term you have three options:

1. Pay off the balance with a final balloon payment and own the car
2. Hand back the keys pay nothing
3. Trade in the car as a part exchange for a new car and sign a new contract.

This method is convenient if you plan to change cars regularly but you don't own the car until the deal is settled (so selling it is more difficult), there are also penalties if you decide to end the contract early.

An 'end of term' value for the car is agreed at the time of arranging the finance, but there are limitations on the mileage and the it must be in good condition.

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Car Finance

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