Car Financing

Buying a car can be a very daunting concept. Even after you have selected your perfect vehicle, you still face another problem; How do you pay for your vehicle? Gone are the days when you would pay upfront for the entire value of a car, not many people can part with upwards of £10,000 these days. Fortunately there are options available to all of us to finance vehicles. In a nutshell, this means rather than paying upfront, you can spread the cost of your new vehicle over a set time span. There are several different ways to do this.

Hire Purchase

This is perhaps the simplest method to understand. You will make an initial deposit, followed by monthly instalments to cover the entire cost of the vehicle. The benefit of this is that you will own the car outright, and you can obtain a high value car for a manageable monthly amount.

Personal Contract Plan (PCP)

This method is similar to above, except at the end of your agreed contract you have three options. You can either:

  1. Just hand the car back to your dealer.
  2. Trade the car in towards another one.
  3. Make a final payment to own the vehicle outright.

Option 1 incurs no extra costs, and because you don’t own the vehicle unless you choose option 2 or 3, your amount financed works out much lower than with a hire purchase. But you will no longer have that vehicle.

Option 2 allows you to use the value of your currently financed car, against a deposit on another vehicle so long as it is from the same dealer. This depends on the actual value of the car, compared to the guaranteed future valued you agreed upon. If the current value is greater, then this difference contributes towards your next vehicle, and vice versa.

Option 3 gives you the choice to make a ‘balloon payment’ and own your vehicle outright. This amount is agreed at the start of your contract, and is set as the guaranteed future value of the vehicle.

Personal Contract Hire (PCH) or Lease

This is a method in which you will never own the vehicle. You simply rent the vehicle for a typical period of 2 or 3 years. The benefit of this is that you are essentially just financing the depreciation of the vehicle for the period you have it. Therefore you tend to pay lower monthly instalments as the vehicle will never be yours. The downside is that you will be without a vehicle at the end of your contract.

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