A vehicle is a substantial purchase, which is why many buyers use car finance to make the large payment much more manageable. If you are unsure exactly what car finance is and how it works it can be quite daunting with all the complicated jargon and abbreviations involved, however, once you get to grips with the lingo, it is a lot simpler than you might think. 

As a specialist in used car finance in Essex, LMC is well placed to help you understand your options and how the finance process works. If you are considering purchasing one of our used cars in Essex on finance, this article should provide an overview of what you need to know.

How Car Finance Works

Car finance can make vehicles easier to afford because the payment will be divided into a series of monthly instalments. It essentially allows buyers to borrow money for a car and then repay this bit by bit to the finance provider. 

While LMC can arrange finance deals, we are not a lender. We actually use a panel of different lenders to compare rates and make sure that our customers get the best deal. The lender with the best rate will be the one you enter into an agreement with, borrow from and make repayments to.

There are different types of car finance agreements that generally follow the same pattern: you’ll pay a deposit, followed by set monthly instalments until the end of the contract term. 

Deposit

The deposit is an interest-free, upfront payment made prior to receiving the car and it will go toward its cost. This means that the higher your deposit, the lower the amount left to pay and the lower your monthly instalments will be. When you apply for used car finance in Essex with LMC you will be able to adjust your deposit amount to suit your budget.

Monthly Payments

The deposit is the only payment you will need to make toward the cost of the vehicle before driving it away, after this, you will start making your monthly repayments. How your monthly instalments are calculated will depend on the type of finance you choose and the length of your contract term.

At LMC, you will be able to increase or decrease your contract length between 1 and 5 years depending on your budget and preferences. Increasing the length will lower your payments while decreasing it will make the payments higher but lower the amount of interest you’ll pay overall.  

Coming to the end of a car finance contract

What happens at the end of your car finance agreement is very much dependent on what kind of finance you opt for and it is important to consider this before you choose which type is right for you. You may wish to become the owner of the vehicle at the end of your contract or you may want to choose a new car.

Choosing a Finance Type 

There are two main types of car finance to choose from: hire purchase (HP) and personal contract purchase (PCP). Both start in the same way with an initial deposit and both require you to make monthly payments, but these payments are calculated slightly differently.

HP Finance

Hire purchase is generally regarded as the simplest type of finance. With a HP agreement, your monthly payments are calculated by subtracting the deposit made from the overall value of the car and dividing the remaining amount by the number of months in your agreement period. So essentially you will be making payments to cover the cost of the vehicle.

At the end of a hire purchase finance agreement, you will become the official owner of the car once you have made your final payment and it is then yours to keep or sell on.

Benefits of HP finance:

• You own the car at the end of the agreement
• No mileage caps, unlike PCP
• No large final payment to keep the vehicle

PCP Finance 

A personal contract purchase agreement is a little more complex because, unlike HP, your monthly instalments do not add up to the entire cost of the vehicle. Instead, you will be paying for the depreciation of the car (the loss in value). 

The finance provider will predict how much the vehicle will be worth at the end of the agreement and then will calculate the difference between the vehicle’s current price and its estimated future value. Your monthly payments will be this difference, minus the deposit, divided by the number of months in your contract period. 

As you won’t have paid the full cost of the vehicle by the end of your agreement, you will not automatically become the owner. You will be given a choice: you can either pay the remaining cost (the estimated future value) to keep the car or you can simply return the vehicle and begin a new agreement.

Benefits of PCP finance:

• Lower monthly payments than HP
• You get to try the car before choosing whether or not to keep it
• You’ll have equity if your car becomes worth more than its predicted value

Applying for Finance

Once you have decided which type of finance agreement is right for you, you will be ready to choose a car and apply for finance. LMC has been arranging used car finance in London, Essex and the surrounding regions for a number of decades and over this time, we have streamlined the process. 

You can apply with us online in a matter of minutes. Use our simple and free finance checker tool to find out how much you could borrow, choose the perfect motor from our vast range of used cars in Essex, then once the paperwork is signed and the deposit paid you can drive away with your personalised car finance deal all set up, ready for you to start making your repayments.

If you have any queries or would like advice about financing your next vehicle, don’t hesitate to get in touch with the team at LMC. As specialists in providing finance for used cars in London, Essex and other local areas, there’s no one better to help you secure the right agreement at the right price!