What Do You Need to Know Before Financing a Vehicle Purchase?

Many small business owners cannot or do not want to purchase the vehicle by paying the entire amount upfront. Purchasing a vehicle through financing is a safe and prudent approach you should take to avoid getting a big hit on the cash flow. This option is getting more and more popular as can be seen by number of queries being out in search engines and number of applications being processed by financing companies. Before you rush to purchase your next vehicle through finance, however, it helps to understand the basics to avoid being in trouble afterwards. Below you can find some of the fundamental questions everyone has regarding vehicle finance.

Do I qualify for vehicle finance?

It depends a lot on individual situation, but majority of people can find something from many types of vehicle finance options available in the market today. Here are some of the popular options:

  • Personal Contract Hire (PCH) – You are essentially leasing the vehicle for a specific period with this option. You can use the vehicle for an agreed upon time at the end of which you need to return the vehicle to the dealer.
  • Hire Purchase (HP) – Similar to house mortgage with this option you pay a down payment and agree to an installment plan to pay the rest on a monthly basis. The dealer will charge you interest to finance this loan.
  • Personal Contract Purchase (PCP) – This option sits between the HP and PCH. You will pay down payment and monthly installment in this plan. However, you have an option to keep the vehicle, trade in for a replacement motor or return the vehicle and walk away at the end of the term.

How long will I need to wait for approval?

If you have all the paperwork in good shape you can get approval within 48 hours. Before the financing company approves you application they need to feel comfortable with your situation by asking these simple questions:

  • Does financing meets your objectives?
  • Will this loan put you in financial hardship this putting their loan at risk?
  • Will you be able to make the monthly payment for the duration of the loan based on your monthly income?

What document do I need to apply?

Application for vehicle financing is very straightforward. They will ask for the following documents to check your credit rating before approving your loan.

  1. Recent paystubs
  2. Proof of insurance
  3. Proof of residency – e.g. utility bill with your address
  4. References
  5. Driver’s license
  6. Trade document with registration and title

What do I do if I need to transfer the vehicle finance?

You may come across situation where you need to get out of the existing financing for long term van hire before the agreed upon term. Fortunately, there are several options available for you to be able to do this.

Payoff early – If you have sufficient cash to pay off the outstanding loan amount now you can do so and end the commitment. You will own the vehicle outright after meeting this commitment.

Settle with dealer for next vehicle purchase – If you are purchasing a new vehicle from a dealership you can seek their help to settle the existing loan. The dealer will typically apply the settlement amount to the new purchase and pay off the current one.

Look into Halves and Thirds rule – For certain type of financing Halves and Thirds rule allows you to voluntarily terminate the agreement provide you have made at least half the amount. It is best to seek expert advice to find out if you can take advantage of this rule.