Finance Products What options are available?
What finance options are available?

Buying a car is one of the biggest purchases that you are going to make in your entire life. Luckily, there are other options to purchase rather than just buying outright.

However, this doesn’t mean that you are limited because there are numerous car financing options that you can consider. We are going to be looking at the different types of car finance available and some of the general questions that people tend to have.

Finance Options

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Personal Contract Purchase (PCP)

With this option, you can use the car until your contract ends and at the end of the contract, you have three options. You can either return the car, pay the resale value, and keep it, or you can use the resale value and put it towards buying a new car. These are the only three options available to you at the end of a PCP contract, so you need to have decided what you’re going to do before the contract comes to a close.

You are likely going to be asked to pass a credit check before you will be accepted for a PCP contract. You’ve got to be able to make these repayments every month, and keep in mind that this kind of contract can last up to four years. So, if you don’t think you’re going to be able to keep up with the payments for the entire contrct, you might need to consider something else.

With a PCP, you’re going to need to pay a deposit, and most of the time, this is going to be 10% of the total cost of the vehicle. You will then use the car and make your payments for the duration of the contract. Ensure to keep within the contract regarding things like mileage, or you will be charged. When the contract ends, if you have decided to keep the car, you’ll need to make a balloon payment, which is based on the guaranteed future value (gfv). The balloon payment is going to be more than your monthly payment, so try to make sure you’ve saved throughout the contract period for this.

PCP - Hows it work diagram

If you don’t want to keep the car, then you can just give it back with no further payment (as long as the mileage is within the contracted amount and the vehicle hasn’t been subject to any unreasonable damage). Or, pay off the gfv and then put down a deposit on another vehicle.

You can end your deal early if necessary, though, as long as you have paid half the value of the car at the time. If you haven’t, then you’re going to have to pay the difference. But, that means that if you don’t want to keep it up for any longer for any reason, you have the choice to early terminate this contract.

However, one of the biggest disadvantages is that with PCP, you are subject to interest charges meaning the amount you pay for the vehicle is likely to be more than the MRRP if you chose to pay the balloon payment (unless the lender is offering 0% APR Representative finance). As well as this, you are going to face charges for things like being in excess of your agreed mileage, excessive wear, and tear, or any other damage such as scratches.

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​Personal Loans

So, a personal loan allows you to borrow an amount of money over a fixed amount of time. It’s not exclusively used for car finance, but it is an option you can consider. If you want to take out a personal loan for a car, then you are going to own the car from the time that the dealer receives payment for the total value of the vehicle.

Personal loans - Hows it work diagram

It is important to keep in mind that this loan is not secured against the vehicle, such as with the other options on this list. What this means is that you can sell the car without permission from your finance company if this is something you want to do at any point. You just need to make sure that the repayments are being kept up with if you do this.

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Hire Purchase (HP)

A hire purchase is the simplest type of car finance that you can take out. To sum it up in a sentence, you will pay a deposit, usually around 10%, and then you make fixed monthly payments over an agreed period of time. So, with hire purchase, the car isn’t going to be yours until after you have made the final payment. What this means, though, is that if you do miss a payment, you could face losing the car as the loan was originally secured against the vehicle. Also, the hire purchase agreements are set up by the dealer, but you can go to a broker to have this arranged if you would prefer. Something else that you need to know is that this works best for new cars as the rates are typically better.


Hire Purchase - Hows it work diagram

One of the best things about hire purchase is that you are paying a fixed amount monthly, so you know that the payments won’t increase or decrease. This gives you a level of security and allows you to budget it into your calculations without much hassle. 

The bad side of a hire purchase, though, is that you don’t own the car until the end of the agreed period. As such, you’ve got to be careful that all payments are being made on time. You also cannot sell the car if you want to. The loan was taken out against the car, and therefore you are going to have to complete the payments before you own the car, and can then sell it on.

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Personal Contract Hire (PCH)

If you never want to own the car, and you know this from the beginning, then you might want to consider personal contract hire instead of the other options we have talked about. If you’re not planning to buy the car at the end of a PCP, then PCH could turn out to be the cheaper option for you.

Same as with the PCP, you are going to have to pass some sort of credit check. It’s likely that you’ll be asked to pay a few months of the lease upfront, and this is usually around three – six months. You’ve got to know what you’re agreeing to and be confident that you’re going to be able to make the repayments for the entire length of the contract.

Once you have the car, you can use it as long as you are sticking to your agreed mileage. If you do happen to go over this, then you will be charged for as much as you go over. However, costs such as car tax are included, so you’re only going to have to pay for the fuel, maintenance and insurance. Your contract should allow for general wear and tear, but anything beyond this could mean that you face extra charges. To avoid this, just keep it in good condition then, at the end of the agreement, you return the car. It really is as simple as that.


PCH - Hows it work diagram

Just make sure that you check your contract for the full list of terms and conditions. This way, you know what can induce more charges, what is expected from you, and the date that the car needs to be returned.

A big advantage of this type of car finance is that if you are someone who doesn’t want to commit to a car, then this is perfect for you. You only have it for the duration of the contract, and then you give it back and move on. But, this can also be a disadvantage if you grow to like the car over the period, because there is no purchase option.

So, now you have all the information about each type of car financing, including how it works as well as some of the advantages and disadvantages, you can start to work out which financing option is going to be the best for you. You can consult a professional if you feel like you need more advice after reading this explanation. Make sure that you check all the information that the lender gives you to ensure it matches up with what you know before you agree to anything.



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