Car Finance Options Explained – What’s The Best Way To Fund Your New Car?
The world of car buying can be an interesting place. We should know, seeing as we have over 12 years’ experience of buying and selling vehicles to maintain an ever changing fleet of over 600 lease vehicles.
So, when you’ve got your heart set on a particular vehicle, you generally take a look online or head to the nearest showroom - only to be baffled by sales talk and the various different finance options that are available to you.
Let’s take a look at those options and what they mean so that you can make an informed choice next time you’re due a new pair of wheels.
Hire Purchase Agreement (HP agreement)
Who’s it good for?
Those looking for the simplest form of car finance that’s straightforward to arrange
How does it work?
You’ll generally pay an initial deposit, which regularly is 10% of the vehicle’s price. You then pay the rest of the cost off in monthly instalments with interest on top. Normally, there’s an admin fee with your first repayment and then an ‘option to purchase’ fee when you come to make your final payment.
This type of finance agreement also offers a higher level of consumer protection than an unsecured personal loan.
Are there drawbacks?
With this type of finance, you won’t own the vehicle until the end of your contract, which means that you can’t sell or modify it without the lender’s (the garage you bought it from) permission.
Also, if you’ve got a good credit history, personal loans will usually work out as a cheaper alternative.
0% finance offers
Who’s it good for?
Those who have a large deposit to put down towards the cost of their new car.
How does it work?
You’ll normally pay a big deposit upfront – don’t be surprised if its 35 – 40% of the car’s list price. The rest of the cost will be paid back in interest free monthly instalments.
Are there drawbacks?
Payments can sometimes be higher with this form of finance as loan terms (i.e. the amount of time you make your repayments over) are often shorter. It’s also more difficult to get a discount on the price of the vehicle, and this form of finance isn’t available on all cars.
Leasing
Who’s it good for?
People who want to drive a new car on a regular basis without the hassle of owning it.
How does it work?
You get to pick your vehicle, how long you want it for an annual mileage you’re going to cover. All these factors will then be taken into account when calculating your monthly repayments. Some lease schemes also allow you to opt for the payments to include maintenance.
Are there drawbacks?
Normally you’ll have to pay a few months’ rental in advance, and you’ll also need to take out comprehensive insurance to cover any damage.
Personal Contract Plan (PCP)
Who’s it good for?
Those who want to keep repayments reasonably low and want a new car every two to four years.
How does it work?
You’ll put down a deposit and then pay monthly instalments for the length of your contract, with a lump sum to pay off at the end of your contract.
There will also be a minimum guaranteed future value, where the lender guarantees that your vehicle will be worth a certain amount when you come to the end of your contract.
At the end of the contract you can pay the deferred sum and keep the car, sell the car privately to fund the final payment or simply hand the car back to the dealer.
If the car is worth more than predicted, you can put the difference towards a deposit on a new car.
Are there drawbacks?
Firstly, you have to estimate your annual mileage and you’ll be charged a set amount per mile for every mile you go over your estimate. Secondly, if there is any damage when you return the car, you’ll likely be charged for it.
So there you have it, a concise summary of the three main ways of financing a new car. Contact us if you would like any more information on our various lease lengths and how we can tailor them to your lifestyle.
