Finance – What Type Of Finance Is Best For You?
23rd January 2018
When you’re looking at buying a new car, affordability is a huge aspect for consideration. Finance deals can help make your dream car a reality, but which option is best suited for you?
Hire Purchase (HP)
Hire Purchase leases are great if you want flexibility with monthly payments and you want to pay a low deposit with low interest rates on the car. With HP offers, you pay monthly instalments for the car, however your final payment at the end of the agreement is when you own the car. HP finance if better for those drivers who want to eventually own the car as the longer the contract is, the lower the monthly instalment are, which is also why the deposit you pay is typically only 10% of the car price. Although, if you can’t guarantee each monthly payment, you could be faced with the car being repossessed as you are eligible for the deal even if you have a poor credit score.
Personal Contract Purchase (PCP)
PCP is a finance agreement whereby over time your monthly instalments actually cost less than that of a HP agreement. Unlike HP deals, you get a choice at the end of the lease to make a ‘balloon payment’ – final large payment – to own the car, return the vehicle to the dealer, or sell it privately to pay off the rest of the agreement. This option is perfect for those who want to change their car frequently as the payments are based around ‘Guaranteed Minimum Future Value’ of the car, so you are protected against any devaluing of the car. As you are essentially hiring the car for the term until you pay the final fee, you have an agreed mileage limit, which essentially makes the car cheaper! However, this lump sum you pay at the end can make the total price a lot higher, so if you want to own a car, it might not be the best option for you!
Personal Leasing (Contract Hire)
Similarly to PCP, Personal Leasing has low monthly payments, however gives you no option to buy the car at the end of the lease, so you never own the car and will be charged for exceeding the mileage allowance! On the plus side, these payments are flexible and mean your servicing needs are included. The terms of the lease are tailored to the type of car, contract length and mileage allowance, which affected the monthly payment you make. Whilst this is a simple finance option, it is best for those that can afford a large upfront deposit as you may often be required to pay three months of the rental payments in advance.
Getting a personal loan means you borrow the funds for your new car from a third party. This arrangement means that your loan is not secured against the car, so it can’t get repossessed if you don’t make a repayment. Whilst this finance option is easy to arrange, you need a good credit rating, otherwise it won’t be a quick and easy process to afford your new car. You should be aware that this option has higher APR interest rates than car finance deals so can be pricier in the long run!
Cash Or Credit
Paying for your new car with cash is the easiest option if you can afford it and have enough disposable income. With cash payments, you have 0% interest and simply pay the listed price without any financial ties! Similarly credit card payments are effectively interest free loans when your credit card has 0% interest. However, you need to make sure you have enough money on your credit card to pay with this option, otherwise you should opt for one of the finance deals.
Here at Eddie Wright, we have car finance opportunities available. Click here to view more about our car finance options!