Saturday, 6 August 2016

Car Finance Explained

Finding the right car can be a difficult process. Do you buy privately, from a franchised dealer or from an independent garage? Then there is the style, the model, the colour, the specifications. Once you have found the right car there is a myriad of options on how to pay for it and in this post I will explain some of the car finance options available.



Cash

Ideally, a cash deal is the simplest transaction and often a discount can be negotiated for cash. This does, however, need some forward planning and not everyone will have the cash available to pay for a new or second-hand car.

Personal Loan

According to What Car magazine, a personal loan is the most popular way to finance a car. Borrowing from a bank, building society or another loan provider allows you to own the car instantly, as opposed to leasing a car and not owning it until the last payment. 

Generally the better your credit history, the lower your A.P.R or Annual Percentage Rate - the interest you pay on your loan. If you have had problems paying back loans in the past there is car finance available for people with bad credit,  however, interest rates may be higher.

Personal Contract Purchase

A Personal Contract Purchase (P.C.P.) is another popular way of financing a car. Similar to hire purchase, you pay a deposit, there is a fixed interest rate and then monthly payments, usually between 1 and 3 years.  At the end of this time you have options to keep the car, trade the car in or return the car to the supplier. 

The car's Guaranteed Future Value (G.F.V.) is set at the start of the agreement. If you keep the car there is a final payment to be made,  if you return the car and it is in good condition and you haven't gone over the agreed mileage then there is nothing to pay. If you trade the car in the G.F.V. is used to calculate anything owed.

Hire Purchase

With Hire Purchase, the car is owned by the company until the final payment. A deposit is paid, usually around 10% and then there is fixed monthly payments. You have no legal right to sell the vehicle until the final payment has been paid. 

Personal Contract Hire

Personal Contract Hire (P.C.H.) allows you to rent a car with an agreed mileage for usually 2 or 3 years. At the end of the contract you do not own the car, you just return the keys to the company.

The advantages of P.C.H. is that is many cases maintenance is included, and if you renew your contract when it runs out you get a new car every 2-3 years. Deposit and monthly payments are also relatively low but you never get to own the car.

So these are some of the finance options available when you are looking to get a car. Have you used any of these?

*PR collaboration
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9 comments

  1. Great post. Very self explanatory. We are thinking a new car so this post is timely.

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  2. Great points for anyone planning to buy a car!

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  3. This is so informative, I've found the whole idea of learning to drive and making such a big purchase so daunting so this has definitely helped!

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    1. Yes it can be daunting. Have you passed yet Abbey?

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  4. We have ours on HP but we didn't pay a deposit. We needed a car that was reliable with low mileage. I didn't know there were so many different methods of car finance

    Laura x x x

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  5. Lots of useful tips for anyone who considers buying a car.

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  6. Very useful post! I might link it to a couple of people I know :)

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