A new car is one of the most expensive items most of us will buy after our homes. Car finance is designed to provide cost-effective ways to buy a new car using affordable monthly payments.
But what type of car financing is right for you?
We cannot answer that question for you but we can provide an outline of your options. We are also available to discuss car financing further should you need us to.
Your car finance options include:
- Personal contract hire
- Personal contract purchase
- Hire purchase
- Business contract hire
- Lease purchase
Let’s take a quick look at each of these options.
Personal contract hire
Personal contract hire, PCH, is like a lease. You pay a set amount per month to use the car but won’t own it at the end of the period. It’s a useful car finance method popular with businesses but is becoming more common for individuals too.
PCH is typically for 1-4 years and will include a down payment and monthly payments until the end of the term.
The advantages of personal contract hire are the ability to drive new cars for low monthly fees, being able to change cars every 1-4 years and no requirement for a deposit.
Personal contract purchase
Personal contract purchase, PCP, works similarly to a lease but a portion of your monthly payment goes towards owning the car. To keep payments low, you’ll only pay a portion of the car’s value during the term, with an optional final purchase at the end.
PCP deals will include a Guaranteed Future Value, which is the final payment you’ll make.
At the end of PCP, you can keep the car and make that payment, return the car with nothing to pay or refresh the deal for a new car.
Advantages of PCP include fixed monthly payments, Agreed Future Value up front and the option to keep the car or change it for a newer one.
Hire purchase, HP, is a very common way of financing a new car. It’s a ‘standard’ car loan that takes into account the car’s value, your trade in or down payment and the length of the contract. Payments are then calculated to fully pay off the car.
HP is what most of us consider as a car loan. It’s simple, easy to arrange and ensures a single, predictable payment for the term of the loan with no final payment.
Once a hire purchase agreement is complete, the car is yours.
Advantages of hire purchase include the ability to own the car, no final payment and no mileage limits.
Business contract hire
Business contract hire is for businesses that need a vehicle but don’t want to purchase one. It’s an efficient form of car financing that has a single monthly payment to use the vehicle and often comes with flexible terms.
At the end of the hire period, the vehicle is returned and you are free to get another contract or try something else.
The advantages of business contract hire include predictable monthly payments, fixed interest rates and not having to buy the car.
Lease purchase is another common form of car financing. It’s also referred to as Conditional Sale and is part lease, part purchase. You pay a set amount per month, use a trade in or deposit to secure the vehicle and pay it over 3-5 years.
You have the option to either spread the cost of the car as well as the lease over the term, or just pay the lease portion with the purchase part payable at the end of the contract.
Once complete, the car is yours to keep.
The advantages of lease purchase are the flexibility, fixed interest rates and car ownership at the end.
Flexible car finance
There are other car finance options such as personal loan, balloon hire purchase and 0% finance but those methods outlined above are the most popular.
There is no ‘best’ car finance option. Only the option that’s right for you. Much will depend on your circumstances, whether you want to own the car or not, whether mileage limits would be restrictive or not and whether you have a deposit or trade in.
If you have specific needs or would like to discuss your car finance options further, our team will be happy to help.
Visit Budgen Motors in Shrewsbury or Telford or call us on 01743 404700 for more information.