It’s Important to Know What Type of Car Finance You Are Getting
Did you know that in the year of 2013 roughly 3 quarters of the cars sold privately in the UK were bought using car finance? That’s a lot of people out there with a car finance agreement. But do all of those people know just what type of car finance agreement they have, and is it really that important that they know? I personally think that it is important to be aware of this information as it can seriously affect your options and your potential liabilities if things were to either go wrong and you could no longer afford to make the repayments, or if you perhaps need to purchase a new car midway through your agreement.
In what ways can finance agreements differ?
If you are buying a vehicle for the first or even the second time, it can be easy to think that all car finance agreements are the same. Actually they’re not, they can differ quite drastically. Let’s consider one big difference between hire purchase agreements and personal loans for example. Personal loans aren’t just handed out by banks you know. Whether you are arranging your car finance online with a site like Moneybarn or you are arranging it in a car dealership, it is quite possible that it could be being arranged in the form of a personal loan, rather than a more typical hire purchase agreement. What might the future implications of this be?
If you fall behind with the payments
One big difference between hire purchase agreements and personal loans is what might happen if you were to fall behind with your repayments. If you fall behind with the repayments on a hire purchase agreement then your finance company has the right to repossess your vehicle very quickly, in certain cases without the need for a court order. With a personal loan agreement things can be quite different. With a personal loan the money is being lent to you as an individual rather than being secured against the vehicle itself, so if you do fall behind with the repayments the finance company can’t take the car off you as they can with HP agreements. The missed repayments will obviously still affect your credit score though.
Handing the car back
These two types of car finance also differ in the detail when it comes to handing back your car to the finance company. Car Hire Purchase agreements have clauses in them which allow you to hand the vehicle back with nothing more to pay if you have paid off at least 50% of the finance amount. This is known as a Voluntary Termination and you can find a lot more information on Voluntary Terminations here. With personal loan agreements this clause is not available so this might well limit your options. This also might explain why some finance companies prefer to arrange car finance on a personal loan basis, rather than as a Hire Purchase agreement.
Don’t let a salesman pressure you into signing an agreement quickly
So you’re in the car dealership, you’ve found a car you like, discussed the finance side of things and you’re about to sign on the dotted line to purchase the vehicle. As you start to read the terms and conditions of the agreement the room goes deathly silent and you can feel the eyes of the salesman burning upon you. The salesman may even utter the inevitable words ‘It’s all pretty standard stuff really’ in an attempt to speed you along. Don’t let it happen. As we can see from just the one example we’ve mentioned in this post, it’s important to understand exactly what type of finance agreement you are taking on if you choose to finance a vehicle purchase and you should take the time to make sure that the finance terms are right for your circumstances both now and in the future.