Motor Market Limited

How car finance works
31 March 2016

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Guide on what you need to know about finance for your vehicle

If you’re in the market for a new or used vehicle, car finance can be a quick, straightforward and secure way of purchasing your car, and many reputable dealers, such as Motor Market in the West Midlands, will offer finance on their cars when you buy from them. So what is car finance and how does it work?

There are two main types of car finance: hire purchase and leasing. When you buy a car using hire purchase, you hand over an initial deposit of a percentage of the price of the car and then make monthly payments over an agreed period. At the end of the period, providing you have made all of your payments, the car is yours.

Leasing works in a similar way but with an important difference. Under a personal contract purchase (PCP) agreement, you make monthly payments until the end of the contract, at which point you can choose whether to buy the vehicle by paying a final amount, known as a ‘balloon payment’.

When choosing car finance, it’s important to compare costs. Every provider should tell you the annual percentage rate (APR) that they charge for car finance. The APR is the percentage of the cost of the car (minus the deposit) that is added to the basic repayments every year for the duration of the finance agreement.

When entering into a car finance agreement, you don’t want any nasty surprises or to find yourself taken for a ride. It’s important to be certain that your car finance provider is a reliable, responsible operator. So for peace of mind, check that the company providing your car finance is authorised by the Financial Conduct Authority (FCA), the body that regulates financial operators.


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