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Motor Money: Car Finance & Insurance Explained

August 29, 2014

Car finance explained

Financing is a great option for those in need of a new or used vehicle, but lacking the upfront cash. In basic terms, it works in similar ways to any other loan, money is borrowed from the lender and repaid over a set period of time – with interest.

car finance

Image source: William Warby


The different types of financing available

There are numerous different types of car financing available – each with their own set of benefits and drawbacks, with some more suited to different types of buyers. The majority of car financing is either hire purchase or PCP, however there are other options available.

  • Hire Purchase: This is the most straightforward type of financing. In most cases, buyers are required to commit to monthly payments until they have paid off the rest of the cost of the car – plus interest. Once all of the money has been paid back, the car is in your full ownership. However, until all repayments have been made, you cannot sell or make alterations to your car.
  • PCP (Personal Contract Purchase) Finance: Buyers pay a small initial deposit, then pay an agreed monthly amount towards paying off the rest of the car’s cost. However, part of the car’s value is withheld – this amounts to the expected value of the car once the contract has ended, taking into account its depreciation of the car’s value. Once the contract is finished, the owner can either pay the lump sum to keep the car, hand it back to the dealership or sell it to fund the final payment.
  • 0% Interest Finance: This is the only interest free financing option available, meaning you don’t pay any extra for your car. However, a large deposit (usually around 40%) is required, meaning this is only really a viable option for those with enough cash for a car. The repayment period is generally shorter than other forms of financing, meaning your monthly payments will be higher. Interest free financing is an attractive option if you’ve already got the cash but want to spread out spending it. 0% financing is generally only available from dealerships looking to push sales on particular models.

The Car Loan Warehouse are experts in car financing, complete our obligation free application or use our online car loan calculator for an instant quote.


Car insurance explained

Insurance is a must, not only for legal reasons, but for peace of mind – providing you with financial cover against damage, theft, bumps and more serious accidents. Although it can be expensive for some, it’s an essential part of car ownership that can’t and shouldn’t be avoided.

car insurance

Image source: Alan Cleaver

Applying for insurance

When looking for insurance, just like when looking for your next car, it’s important to shop around. Quotes and prices vary significantly between different insurance providers and comparison sites are a useful tool for sifting out the cheapest options. When providing you with an insurance quote, insurers look at a number of factors which determine how much risk your car is exposed to. Factors such as age and driving experience are key to determining price, with younger drivers being more likely to have an accident than more experienced ones – meaning they pay a premium on their car insurance.

When completing an insurance application form, you will be asked for other information such as your address, occupation, what you will use your car for and where it will be parked. All of this information along with the value, make and model of your car is used to calculate your insurance quote. It’s vital when completing an application that the information you submit is one hundred percent accurate – as false information could invalidate your insurance!

The three types of car insurance

  • Fully comprehensive: As suggested by the name, this is the most comprehensive insurance cover, providing you with full coverage, for any eventuality. Naturally, this is the most popular type of car insurance, meaning drivers can take to the roads in full knowledge that they are covered for just about anything.
  • Third party: This is often the cheapest insurance option, giving you the legal minimum amount of cover needed to drive. It essentially means that if you damage someone else’s vehicle or property while driving, your insurance will pay for any claims they may make. However, you will not receive any compensation or cover to repair or replace your own vehicle. Some drivers are often tempted by cheaper third party insurance, which have the disadvantage of being landed with hefty repair bills in the event of an accident.
  • Third party plus fire and theft: Essentially the same as third party insurance, these policies also protect you against fire damage or theft of your vehicle, giving you additional peace of mind.

Things to look out for when selecting your insurance

Not all insurance policies are equal, don’t be tempted by something that seems too good to be true, as more often than not – it probably will be! Every time you make a claim on your car insurance, you will be charged an excess fee – this is to deter people from claiming for very small repairs etc. You will also notice that if you make a claim, you insurance premium will increase dramatically the following year. Look out for insurers who reward loyal customers and offer a no-claims bonus for safe drivers – allowing you to build up a discount on the cost of your annual insurance.

About The Author

Jon Le Roux is co-founder and company director of The Car Loan Warehouse. Being a mad engineering and motorsport enthusiast, I spend more hours than is healthy, watching, reading or talking about cars, boats, motorbikes…..basically anything with an engine.