If you’re looking to get a car on finance, you may not even be thinking about what happens when your car finance agreement ends. However, knowing how your car finance agreement works and what you can do when car finance ends, could determine which type of agreement you choose. Depending on what you want from your car finance agreement, whether you want to own the car or not or be the automatic legal owner from the start, may make your choice a little easier. The guide below has been designed to explore what happens at the end of the most popular UK car finance agreements and help you take back control of your finances.
What happens at the end of your car finance agreement?
Depending on the type of car finance agreement you choose, you may have different options when your deal comes to an end. In the UK, the most popular car finance agreements include a hire purchase option, a personal contract purchase deal and a personal loan. Each agreement has its own individual structure and the options at the end of the agreement vary massively. Let’s look at each in more detail and see which could be best for you.
Hire purchase car finance
Hire purchase is one of the most straightforward forms of car finance. Within a hire purchase agreement, the lender owns the car throughout the agreement, and you make monthly payments that equal the value of the car plus any additional fees and interest. Usually, hire purchase agreements are taken over 3-5 years and benefit from a fixed interest rate and fixed monthly payments. You won’t be the legal owner of the vehicle until the final option to purchase payment has been made. Alternatively, you can choose to hand the car back to the dealer at the end of the agreement. As long as all payments have been made on time and in full over the course of the agreement, the deal is pretty straightforward. However, if you fail to meet the repayment deadline, the lender has the right to take the car from you at any point in the agreement. Hire purchases can be the most beneficial if you want to get a car and be the owner of the vehicle at the end of the deal.
Personal Contract Purchase deals
Personal Contract Purchase or PCP is a flexible way to fund your next car. PCP can be best suited to people who want more freedom from their car finance agreement as there are a few different options when your PCP deal ends. Instead of covering the cost of your chosen vehicle, like a hire purchase deal, you instead pay off the rate of depreciation which makes the loan amount much smaller. This means at the end of your deal; you have more options. As long as all payments have been made on time and in full, you can simply hand the car back to the dealer and the deal is done. If you wish to keep the car, you can pay the large balloon payment or refinance a PCP final balloon payment. You can also choose to use any positive equity in the deal to go towards a newer car on PCP too.
Personal loans
Unlike hire purchases and PCP deals, personal loans aren’t secured against the car you buy and can be used to buy anything you want. Getting a personal loan means you can request to borrow an amount from a lender and if approved, it gets deposited into your bank account. You can then use the amount to buy the car you want just like a cash buyer. You then make monthly payments to pay off the loan over your chosen term. As for the car, you are the automatic legal owner from the start and can modify it or sell it when you like. If you sell the car before the loan term is up, you will still need to continue to meet the monthly repayments. Once the personal loan has ended and all payments have been made on time and in full, there’s nothing more to do!
Can you get another car on finance?
Once your car finance agreement has ended and all payments have been made on time and in full, you’re free to do what you want! If you’re looking to get another car on finance, you can get a free car finance quote to see how much you could borrow before you apply! If you’re taking out car finance for the first time or your previous agreement has left you feeling a little bit let down, you could consider exploring some of the car finance agreements listed above and see which one would be best suited to your circumstances.
Does car finance harm your credit score?
If you’re looking to get a car on finance, many people wonder what the effect on their credit score will be. When you apply for car finance, you will usually have to undergo a credit check to see what your eligibility for car finance is. Lenders use a credit check to determine the level of risk and see how you’ve handled credit in the past. Many lenders now use a soft search credit check though which doesn’t affect your credit score and won’t be recorded on your file either. Car finance can actually be used to improve your credit score if you make all your payments on time and keep up with any other financial commitments too. Car finance could only damage your credit score if you fail to stick to the terms of your agreement.