All the types of car finance for young drivers are here! HP, PCP, Personal loan, Guarantor loan explained! And Yes! There is a car finance option for most young adults including those with a provisional licence
HP Hire Purchase car finance
Hire Purchase is popular among young drivers with a Good or Bad credit score wanting to own the vehicle at the end of the contract.
Most car dealerships provide HP finance, but with an HP car loan from a finance company, you can purchase from any dealer you choose.
The car secures the loan, so you don’t own the vehicle until the end of the contract.
- Quick and easy to arrange.
- Lower deposit.
- HP does not impose mileage limits.
- You own the car at the end of the contract.
- You can’t sell the vehicle without the finance company giving permission.
- The repayments are higher than with other forms of car finance because, at the end of the HP agreement, you will own the vehicle.
PCP (Personal Contract Purchase) leasing a car
When people talk about leasing a car, they are usually referring to PCP finance.
A Personal Contract Purchase is ideal for young adults who have built up a Good credit rating.
PCP leasing is perfect for young drivers not concerned about owning the car but looking for lower monthly repayments and prefer to change their cars often.
The monthly payments are lower than HP because, over the period of the PCP, it’s only the amount the car decreases by that you pay.
A PCP defers the GMFV (Guaranteed Minimum Future Value) of the car until the end of the contract.
You have the option to keep the vehicle and pay the GMFV or hand the keys back and perhaps take out another PCP.
- Lower monthly repayments than HP.
- A lower deposit at the start of the agreement.
- Contract period usually 12 to 36 months.
- Options at the end of the contract on what to do with the car.
- with Personal Contract Purchase deals, you are not the legal owner of the car.
- You’ll have to pay the GMFV if you want to keep the car.
- Any damage to the car or additional mileage incurred will at the end of the contract result in an additional charge.
Guarantor car loans
With a guarantor loan, you need someone who can guarantee the loan should you fail to make the repayments.
A Guarantor loan to buy a car allows young adults with a poor credit history or having problems finding finance because they have not previously taken out credit to get a car.
Repayments are monthly, and the term of the loan can be between one and five years.
A Guarantor could be a family member or friend; they will need to:
- Be aged between 18 and 75.
- Have a Good credit rating and preferably be a house owner. Owning a home is not essential, and the finance “is not secured” on the property.
A Guarantor car loan is in your name, and you are the borrower with a responsibility to both the Lender and your Guarantor.
- The loan does not use the car as security.
- Good route to improving your credit score, but you must keep up to date with your repayments.
- The opportunity to pay off the loan early without incurring any extra charges.
- No need to find a deposit for the car.
- You can buy a car and pay for the insurance and road tax at the same time.
- With the cash in your pocket, you will have a strong bargaining position with a car dealer or private owner.
- No limit on the number of miles you can drive!
- The interest rate (APR) on a Guarantor car loan is higher than for other ways to finance a car purchase.
Personal loan to buy a car
With a Good credit rating, a Personal loan from a Bank, Building Society or Car Finance Company can be one of the cheapest ways to buy a car.
Secured or unsecured personal loans!
If your credit rating is good the personal loan for a car purchase may be unsecured or your home used as security.
Secured personal loans attract a lower APR than unsecured.
- You own the car, and the money can also be used to pay for insurance and vehicle tax.
- One of the cheapest forms of car finances available.
- Not much against this type of loan but think carefully before offering your home as security.
PCH Personal Contract Hire car finance
Young drivers who are looking to take out PCH car finance will need to have a Good credit rating.
With PCH car finance you pay monthly to use the vehicle, included in the repayments are the servicing and maintenance. You return the car at the end of the contract.
The lease period is from 12 to 36 months with a deposit equivalent to three months payments.
- No worry about resale value, warranties, road tax and maintenance.
- The chance to drive a better car than you might otherwise afford.
- Unless you opt out, your lease agreement will be regulated by the FCA which means you have certain legal rights and protections.
- The car will never belong to you.
- Beware of exceeding the mileage limit if you do it will cost you.