Financing a car purchase has become easier yet, at the same time, more complex. Treating yourself to a new car is one of the great pleasures of life but it is also a big expense. Therefore it pays to get your facts in line before you head off to view all those alluring beauties winking at you from shiny showrooms or welcoming websites.
Paying cash is fine but for most of us there will always be a need for car finance to get your hands on your heart’s desire. In that case it’s always a good idea to know your credit score and check your credit report if you’re going to be applying for finance. There are companies like MyCreditMonitor that will let you check your score quickly online and for free.
Routes To Car Finance
These days, in the interests of shifting more motors, the automotive industry has come up with some excellent methods to get would-be drivers on to the road. Whether you decide to get a supercar or a family hatchback, then here are some ways to live the dream:
Personal Contract Hire
Personal contract hire (PCH) follows a structure that is very easy to understand. Once you’ve chosen your car, you make a low initial payment and then set up a fixed monthly payment plan over a lease period that is agreed beforehand. Eventually the agreed period comes to an end at which point you hand the car back to the dealer and walk away free of any further commitments. A downside perhaps is that you never actually own the vehicle on PCH.
Also, it pays to remember that you might have to pay an additional fee to cover the costs of any wear and tear beyond what the dealership would consider reasonable. This could be a cause of contention. A further charge could be applied if you went over the monthly mileage limit agreed at the start of the term.
Take out a finance lease on your new vehicle and you will be able to enjoy a minimal outlay as well as receive maximum tax benefits. This option also comes with a number of rental patterns, to the point where there is sure to be one that fits with your financial circumstances at the time. When the deal ends, a final balloon payment needs to be made. The vehicle you have been driving will be sold in an attempt to make up the amount to be paid, however if this isn’t enough then you will need to pay the remaining balance.
The last of the entirely non-ownership options, contract hire sees you being able to enjoy your latest car on a fully inclusive basis and then simply handing it back to the dealership once the contract expires.
One word of caution where a contract hire is concerned though is that you will be restricted to a mileage limit which will be clearly outlined to you at the start. Fail to keep below that limit and you will have to pay an additional charge, so a bit of forward planning is strongly encouraged before putting pen to paper.
Good Old Hire Purchase
Hire purchase is a lot like the PCH option discussed earlier, in that you begin by putting down an initial deposit and then make monthly payments over a length of time that is agreed by you and the dealership.
However, with hire purchase you don’t hand back the car at the end of an agreed period. This time, once the last payment has been made you become the owner of the vehicle. Of course, the lack of a balloon payment does mean that either the monthly instalments will be larger than many of the other options discussed in this guide or the duration of the agreement will be longer.
At the end of the day though your beloved motor will be yours. This is the best way forward for used cars and there are some cracking car finance offers these days. Remember, dealers want to sell cars.
As well as having similar names, a hire purchase and a lease purchase follow the same pattern all the way up to the end of the payment period. Therefore, you will still have a deposit to pay and then make fixed monthly payments for an agreed period of time.
However, once the final instalment has been paid on a lease purchase agreement you will have to cover the costs of one last balloon payment before you can claim full ownership of your vehicle. It is important that drivers don’t forget that this is here, which can be easy to do if an agreement runs over a number of years.
Personal Contract Purchase
With PCP, there’s plenty of options available when it comes to a purchase agreement. For one, the size of your fixed monthly payments over the agreed lease period will be determined by how much you put down as a deposit — this could be cash or the value of an older vehicle through part-exchange. When a PCP deal terminates, you will be presented with a further three options. One, you make a final balloon payment and take ownership of the vehicle. Two, you swap your car and take out a new agreement on a new vehicle. Three, you return the car to its manufacturer and walk away with no further commitments.
The benefits of a flexible car purchase market are also the drawbacks. In olden times customers knew where they stood. Now, although some of the deals are genuinely good, the system is a lot more complex. If you don’t understand find out first. Consider all the options on offer for financing that new vehicle. Make sure you know where you stand on car finance and credit score. Don’t let your heart rule your head.