Across the UK, more motorists than ever before are funding new and used car purchases with specialist car finance. Even for those who would have traditionally unable to qualify, car finance with a poor credit history is becoming more accessible all the time.
It's estimated that on an annual basis, more than £30 billion is issued by lenders specifically in order to purchase cars. In fact, research suggests that approximately 90% of all private car purchases now involve a car finance agreement.
Understanding car finance
While there are differences between schemes, the general principles of car finance remain the same. The buyer is able to spread the cost of a car purchase over a fixed period, after paying a deposit and agreeing to the borrowing costs attached to the loan.
The boom in car finance popularity is largely attributed to low interest rates and greater flexibility than ever before.
Nevertheless, there are some who argue that figures such as those above represent worrying news from a wider economic perspective. Rather than opening up options for responsible motorists, critics suggest that car finance could lead to unsustainable levels of debt being taken on.
Newer, safer, better
From an advocate's perspective, it's important to consider the benefits of using car finance to fund vehicle purchases. For one thing, affordable finance enables buyers to invest in a level of quality that they wouldn't otherwise be able to access.
To take an example, the average small business owner may find it difficult to come up with the money to buy decent vehicles for their enterprise. Their limited budget may only stretch to older, more run-down and potentially more dangerous vehicles.
Having access to finance could mean making safer and more efficient vehicle choices, requiring less costly maintenance and infrequent replacement. Therefore, taking out a loan at a competitive rate of interest could represent the better option in the long run.
If the business in question is in decent financial shape with a steady income, coming up with the money each month to cover repayments shouldn't be difficult. Use a car finance calculator to get estimates on your pay-back options.
Unsurprisingly, research suggests that the desire to upgrade to a newer, safer and better car is the primary motivation among car finance customers. For many, it's the only realistic option on the table - if looking to avoid buying yet another clapped-out vehicle.
A question of responsible lending
Car finance only becomes a debt worry in instances where lenders and borrowers alike engage in irresponsible activities.
Ultimately, it's up to the borrower to determine whether they can afford to finance the purchase of a vehicle. Nevertheless, the lender must also take responsibility for the products and services they provide.
To date, there is no evidence to suggest that car finance is being offered irresponsibly. What's more, it's worth remembering that even if specialist car finance didn't exist, business owners would still have access to other financial products. The simple fact is that if someone wants to finance a purchase with a loan of some kind, they'll find a way to do it.
In the absence of specialist car finance, people will simply turn to personal or business loans, arranged overdrafts, payday loans or their credit card - all of which can turn out to be costly and risky options.
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