What Are Your Options At The End Of Car Finance?

When you get a car on finance, your first thought probably isn’t what will happen when your car finance ends. However, knowing what happens at the end of your car finance agreement can help you choose the most suitable finance deal for you. If you’ve already taken out a car loan, it’s good to know where you stand at what your options are. Depending on the type of agreement, you may be able to hand the car back to the dealer or refinance a final payment to keep the car. The guide below has been designed to look at each agreement in more detail and the options at the end of your car finance deal.

What happens at the end of a car finance deal?

When you get a car on finance UK, you will more than likely have three types of car finance agreement to choose from. Your options aren’t limit to these, but they tend to be the most popular amongst UK drivers. A personal loan, hire purchase deal or PCP car finance agreement may be the most suited to you and each has a different structure. Their individual structure also affects your options at the end of your deal. Let’s take a look.

Personal loan

A personal loan is when you borrow money from a lender to fund your car purchase. A personal loan can be one of the most cost-effective ways as it isn’t secured against the vehicle. A personal loan can be used to buy anything you like and if accepted the money is deposited into your bank account. You then have the freedom to buy the car you want from a private seller or dealer. As you have bought the car outright, you are the automatic owner of the car, and the finance isn’t secured against it. This means you’re free to modify the car as you like and sell it when you want. However, you will still need to continue to meet your monthly repayments if the term has not ended before you sell the car. There’s nothing left to do at the end of your agreement either, as long as all payment have been made on time and in full, the agreement has ended and there are no more payments to make.

Hire purchase

Hire purchase is a form of secured finance which means the lender owns the car whilst you use it. At the start of the agreement, you take out a loan from a lender that covers the cost of your chosen car plus any interest and additional fees. You make payments over 3-5 years and once you’ve made all payments on time and in full, the car is yours to keep at the end. There can be a small option to purchase fee associated with hire purchase, but this is usually something similar to the payments who have already been making. You can also choose to hand the car back to the dealer if you don’t want to own it. It’s worth remembering that the lender owns the car throughout the term which means if you fail to keep up with your repayments, they have the right to take the car off you.

Personal Contract Purchase (PCP)

A Personal Contract Purchase deal can be one of the cheapest ways to finance a car in terms of monthly payments but it can be confusing. Like hire purchase, it’s a form of secured loan but instead of making payments to pay off the cars value, you instead cover the cost of depreciation. This makes monthly payments lower. At the end of a PCP finance deal, you have three choices.

1. Hand the car back to the dealer. If you’ve made all payments on time and in full over the course of your agreement, you can hand the car back to the dealer. As long as the car is within the agreed mileage and is in good condition, you can walk away with nothing left to pay.
2. Pay the balloon payment. Due to the structure of PCP, there is a large balloon payment to pay if you wish to keep the car. If you can’t afford to pay it outright, you could look to refinance a PCP final payment to help spread the cost and keep the car.
3. Get another car on PCP. If you want to start another PCP deal on a newer car, you can use any positive equity on your current car towards your new deal.