Just how can we spread the costs of buying a new car? There are a variety of financing options that make funding a new car a whole lot easier, but predictably they each have their pros and cons. This post takes a look at the facts when it comes to financing a new car.
What are the types of common car finance? The main types are as follows:
- PCP (Personal Contract Purchase)
- PCH (Personal Contract Hire)
- Hire Purchase
- Personal Loans
Dealership Finance
Car dealerships usually offer finance deals directly from the point of purchase, whether it’s business or personal leasing on a variety of vehicles from motorbikes, smaller cars, executive vehicles and business fleets. Dealers will vary when it comes to the finance they offer, so research is important here. You may be able to negotiate depending on where you go.
Hire Purchase
With this type, you’ll have to pay a deposit of around 10% of the car value, before you start making monthly repayments. You won’t own the car until the final payment unless you make an early settlement fee, and if you fail to repay, the car will be taken back.
PCP
The only way a personal contract purchase will differ to a hire purchase is at the end of the timeframe when you have one of three options:
- Return the car
- Keep the car
You’ll have to make a final payment of the car’s guaranteed future value (GFV) - Trade the car against a replacement
PCH
Personal contract hire or ‘personal leasing’ is an option for those who don’t want to own the car or want a car that would normally be out of your price range. You make fixed monthly repayments after a comparatively low deposit with options for maintenance. You won’t own the car outright.
Personal Loan
Getting a personal loan from a bank or another lender in order to finance buying a new car is a very popular option. The main draw of a personal loan is the fact that you’ll immediately have ownership over your chosen vehicle. You also won’t have to shell out for a lease deposit. Well, the best thing to do is to research loans based on the APR – the annual percentage rate. This value shows how much a loan will cost you over the time period it covers.
- Don’t get caught out – make sure you check out the APR of a loan in detail as the advertised rate may not end up being what you actually pay for. It will be subject to your credit rating. In that vein, it can be tempting to opt for a longer loan repayment timescale as the lower repayments are more affordable in the short term.
Although you won’t be subject to annual mileage restrictions as with dealership finance, there is the possibility that if you are unable to make loan repayments, your assets could be seized. With dealership finance, you will only have to worry about your car being repossessed.
So, those are the options. The choice you make depends entirely on your personal financial status and your plans for car ownership outside of the loan or lease period.
