One of the most defining moments in life is the moment you buy a brand new car. Whether it’s the first of fourth time of doing it, there’s nothing quite like being handed the keys to your spanking new vehicle.
However, one thing that often gets in the way of the exciting moment has having to deal with all of the jargon that comes with buying a car, or any big purchase for that matter. But it doesn’t have to be that way. If you’ve got to grips with the different payment options that come with buying a vehicle, you can walk into a dealership prepared to fly through the deal and make the process run as smooth as possible. Before you decide what the best car finance option for you is, you need to know exactly what options there are available.
Personal loans are loans not made with the finance company or dealer and instead done through a bank. With a bank loan, you can pay the full sum of the car off and instead of paying the finance company back, you’ll be paying the bank.
In the long term, this can have several benefits, firstly, you won’t need to pay a deposit, therefore the initial large sum disappears. Likewise, bank loans often have lower interest rates that dealer finance and the cost can be spread out longer. With this in mind, it would be advisable to check your credit score, as you will only receive a good loan with a good score.
Personal contract hire (PCH)
However, if you are looking in the direction of dealer finance, perhaps the best car finance option you can choose is Personal contract hire. Fundamentally, this is just a long-term rental agreement. If you are looking for a vehicle that you can change often then this is one of the best options out there.
With a PCH, you will pay a larger deposit than usual, however monthly repayments are often low and at the end of the agreement you simply give the car back, or choose another vehicle and start the process again. With this kind of finance, you will never own the car and you will be charged for any wear and tear or additional mileage used.
Personal contract purchase (PCP)
Personal contract purchase is similar to the hire, except you do have the option to buy the car outright at the end. With both options, monthly repayments are cheap as you are paying the price of the devaluation of the vehicle and not its price new.
Once your agreement has expired, you can give the car back, trade it for another, or buy it out with a balloon payment. Again, this is a potentially great deal if you are looking to trade the vehicle often.
Hire purchase (HP)
Last but not least there is hire purchase. The only option at the end of the agreement is to own the car, you are not able to give it back or trade it in. Unlike the above options, you will be paying for the full price of the car new in monthly repayments, as opposed to the depreciating value of the vehicle over a certain amount of time.
HP can come in handy for people that have a long-term plan to keep driving the car over a longer span of time. The monthly repayments will be higher, but there will be no lump sum to pay at the end of the term, you will have eventually made enough payments to pay off the vehicle and it will be yours to keep.