HIS & HERS TAKES A LOOK AT THE DIFFERENT OPTIONS FOR GETTING YOUR DREAM CAR…
Affording your next car doesn’t often require you to save a huge amount of money, unless you’re aiming to purchase your set of wheels outright of course. For any other option, there are car finance options available — with Volkswagen dealership Vindis explaining what’s meant by each option in this handy guide…
What’s available when buying a new car?
1. Personal Contract Hire (PCH)
Look into personal contract hire (PCH) if you are hoping to lease a new car. This is because you will never own the car in question when taking out a PCH plan; it must be returned at the end of the contract term.
Before you can start to use one of a dealership’s cars, you’ll need to agree to pay them a fixed monthly amount for the privilege. Fortunately, the costs of servicing and maintenance are both factored into this amount. Once a PCH agreement ends, you simply hand the car back to the dealer and needn’t worry about the vehicle depreciating in value.
Hoping to keep swapping vehicles on frequent occasions? Then PCH will likely be the best finance option for you. However, take note that you must ensure the vehicle remains in good condition during the entire time it’s in your possession and that you don’t exceed the annual mileage limit agreed at the start of the agreement — extra costs could come your way otherwise.
2. Hire purchase (HP)
Hire purchase (HP) is quite simple to understand. Sixteen per cent of those involved in a WhatCar? survey admitted they favoured this type of car finance.
You’ll be required to pay a deposit in order to take out a HP agreement. This is often 10 per cent of the total value of the car at the time of the purchase. From there, you repay the remaining balance in monthly instalments, plus interest, throughout the rest of the loan period.
You gain the title of being the car’s outright owner once the entire loan has been paid. Up until then, you won’t need to be concerned about any excess mileage charges and there’s no reconditioning costs to worry about either.
Take note that there are a variety of consumer rights linked to HP agreements. You may be able to return the vehicle once you’ve paid half the cost of the vehicle and not be required to make any more payments, for instance, while your lender will not be in a position to repossess your car without a court order after you’ve paid a third of the entire amount that you owe.
Don’t forget that you’re not the car’s owner until the full HP agreement has been paid mind. Therefore, miss a payment or a collection of them and you could well be at risk of losing the car. Likewise, you won’t have a legal right to sell the car until all payments have been made.
3. Personal Contract Purchase (PCP)
The aforementioned HP agreements have a few similarities to personal contract purchase (PCP) agreements. Ranked as the second most popular finance option when buying a new car according to the aforementioned WhatCar? poll, with 25 per cent of those involved in the poll saying they favour this technique, you again pay a deposit, which is often ten per cent of the vehicle’s overall value too, before paying a series of monthly installments.
Monthly installments of a PCP agreement will be paid towards the depreciation that’s being made in the vehicle’s value throughout the period of a contract. This is different to the whole value, like with HP agreements. Once you reach the end of the contract term, you’ll be presented with three options with what you want to do next:
- Return the vehicle to its supplier — this won’t cost you anything unless you’ve exceeded your agreed mileage or fail to return the car in a good condition.
- Take full ownership of the vehicle — though for this option, you will be required to make a final ‘balloon’ payment. This amount will be the car’s guaranteed future value, or GFV for short.
- Trade the vehicle in and use any GFV equity as a deposit towards getting your hands on a new set of wheels.
As a result, you’re effectively repaying what is the different between the vehicle’s worth when it was brand-new and the sum that it will be worth at the end of a contract — as well as the cost of interest — when it comes to GFV. Take note too that the GFV will be agreed before a PCP contract begins, though so too will a mileage allowance — and any excess mileage charges will apply if you go over this limit.
PCP agreements have some more considerations to bear in mind too. For instance, you will be unable to sell the vehicle during the contract period of the PCP agreement, as you won’t own the car during this term, while some PCP contract providers will have a limit on the number of days that a vehicle can be out of the country — something that’s certainly worth thinking about if you drive abroad at least from time to time.
Made the decision to settle a PCP agreement at an earlier date that you agreed initially? Then take note that the difference between the car’s current value and the payments which are outstanding must also be paid. Early settlement charges sometimes apply here too, so bear that additional cost in mind too when thinking about doing this.
4. Personal loan
Personal loans can be acquired from buildings societies or banks. Once granted, these enable you to spread the cost of purchasing a new car over a period of time that can last anywhere from one year to seven years. According to the earlier mentioned survey by WhatCar? a personal loan is the most popular way to finance a new vehicle, with a third of those who were involved in the motoring publication’s poll saying they favoured this finance option over all others.
If you don’t mind borrowing over an extensive period of time, then personal loans could be perfect for you. This is because they usually make for the cheapest finance option to do so. They also mean that you will own the car from the moment you take out the loan. Competitive fixed interest rates can be gained if you shop around for your personal loan too, while you often won’t even need to worry about paying a deposit to get the loan.
There’s a lot of benefits to buying a new car with the use of a personal loan. You won’t need to worry about any annual mileage restrictions, for instance, while you won’t need to hand the car back to the dealership once the loan is paid either — thus no need to be concerned about reconditioning costs either.
Just be sure that you never fall behind on a personal loan’s payments. If you do, any of your assets can be seized — only your vehicle will be vulnerable to being reprocessed should the same thing happen with dealer finance. A clean credit rating will likely be required if you want to take out a personal loan too, while you’ll also beat the brunt of your car’s depreciation due to you owning the vehicle from the moment you take out the loan. Ensure the vehicle that you have your eyes on will be something that you can imagine driving for years to come, as the lender will still require you to repay the full loan even if you sell it or it gets written-off.
What’s available when buying a used car?
Choose to purchase a used car and both HP and PCP agreements can be used too. Each agreement uses the same principles as we’ve covered earlier as well. Of course, you can also take out a personal loan when looking for a way to finance a used car.
It’s a bit more complicated to explain leasing when it comes to getting your hands on the keys to a used vehicle though. Some dealers will allow their used cars to be leased, but not all of them. Many dealers will determine the amount that you have to pay on a monthly basis based on how much they expect the vehicle that’s being leased will depreciate over the finance term you have in mind. This may result in you witnessing more expensive leasing deals that you’d have expected though, as the residual values of used cars are usually more difficult to forecast and so dealers will be aiming to always cover the cost of any unexpectedly severe depreciation periods.
We’re very proud to bring you this feature in association with Vindis. For more news, reviews and advice, please pay a visit to our lifestyle page.