Buying a car on finance is one of the easiest ways to get on the road and even premium brands such Audi and BMW suddenly become more affordable.
However, car finance is also a minefield, so you should always be clued up before you walk into the dealership.
Here is everything that you need to know about buying a car on finance…
This is one of the most popular method of car finance, as the deposits and repayments are low. PCP enables you to have a brand new car, in exchange for a deposit and monthly repayments. At the end of the agreement (usually 3-4 years), you hand the car back to the dealership in good condition, with allowances for ‘fair wear and tear’. If you decide you want to keep the car, you have the option to make a final balloon payment to keep it. The balloon payment is agreed at the start of your contract, based on the car’s value and how much it will depreciate over time. With PCP, the monthly price of the car is based on the deposit you make, the overall cost of the car, the interest rate and the Guaranteed Future Minimum Value – which is how much the dealer expects they will be able to sell the car on for.
Personal Contract Hire is similar to the way that you would hire a car whilst abroad. You will pay an amount upfront, followed by monthly payments, over the course of a few years. Once the contract ends, you won’t own the car or have the option to buy it, so you will simply give it back. Instead of a deposit, the upfront fee is known as initial rental, and it is calculated as three, six or nine of the monthly payment, rather than being flexible. Your contract will specify how many miles you can cover, and the fee if you go over. With leasing, you have the option to add a service plan to your agreement, so you will never need to pay for services and minor repairs like tyres. Personal Contract Hire is popular with online leasing companies, such as All Car Leasing.
With a hire purchase agreement, you will own the car outright at the end of the contract. You pay an initial deposit, and then a finance company will loan you the rest of the money for the car, which you pay back in monthly instalments. The deposit and monthly repayments will depend on the cost of the car, the interest rate and the length of the agreement. Hire purchase agreements don’t include a restriction on mileage or wear and tear, as the car will be yours to keep.
A bank loan is an alternative to finance, which means you can drive a brand new car without worrying about going over a mileage limit or having to return it. By using a bank or building society loan, you will own the car as soon as you get the keys, and you can sell it on whenever you want to, without the restrictions of finance.
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