Car lease has become big business. A wide array of new and used car buyers in the UK are making their vehicle purchase on finance of some sort. It might be in the form of a bank loan, finance from the car dealership, leasing, credit card, the trusty ‘Bank of Mother & Dad’, or countless other kinds of finance, but relatively few people actually buy an auto with their own cash anymore. military vacation loans
A generation ago, a personal car buyer with, say,? 8, 000 cash to invest would usually have bought a car up to the value of? eight, 000. Today, that same? 8, 000 is more likely to be used as a deposit over a car which could be worth many tens of thousands, followed by up to five years of monthly installments.
With various manufacturers and dealers claiming that anywhere between 40% and 87% of car buys are today being made on finance of some sort, it is far from surprising that there are lots of men and women jumping on the car finance bandwagon to gain from buyers’ desires to have the newest, flashiest car available within their monthly cashflow limits.
The benefit of financing a car is very easy; you can buy a car which costs far more than you can pay for forward, but can (hopefully) control in small monthly pieces of cash over a period of time. The condition with car finance is that many buyers avoid realise that they usually wrap up paying much more than the face value of the car, and they don’t review your loan document thoroughly of car finance agreements to know the implications of what they’re signing up for.
To get clarification, this author is neither pro- or anti-finance when shopping for a car. What you must be suspicious of, however, are the full implications of financing an auto – not simply when you buy the automobile, but over the full term of the finance and even afterwards. The industry is heavily regulated in britain, but a regulator can’t make you read documents carefully or force you to make prudent car funding decisions.
Financing through the dealership
For many, financing the car through the car dealership where you are buying the car is very convenient. Additionally, there are often countrywide offers and programs which can make financing the vehicle through the dealer a nice-looking option.
This blog will give attention to the two main types of car funding made available from car dealers for private car buyers: the Hire Purchase (HP) and the Personal Contract Buy (PCP), with a quick reference to a third, the Lease Purchase (LP). Leasing contracts will be discussed in another blog coming soon.
What is a Hire Purchase?
A great HP is really like a mortgage on your house; you pay a first deposit up-front and then pay the rest off over an agreed period (usually 18-60 months). When you have made your final payment, the car is officially your own. This is the way that car finance has operated for many years, but has become starting to lose favour resistant to the PCP option below.
There are lots of benefits to a Hire Buy. It is simple to understand (deposit plus a number of fixed regular payments), and the customer can choose the deposit and the term (number of payments) to suit their needs. You can choose a term of up to five years (60 months), which is much longer than the majority of finance options. You can usually end the agreement whenever you want if your circumstances change without massive penalties (although the total amount owing may be more than your car is worth early on in the agreement term). Generally you will conclude paying less in total with an HP than a PCP if you are planning to keep the car following the fund is paid off.
The primary disadvantage of an HORSEPOWER when compared with a PCP is higher monthly payments, message the value of the auto you can usually find the money for is much less.
A great HP is usually best for buyers who; intend to keep their cars for years (ie – longer than the finance term), have a huge deposit, or require a simple car fund plan without sting in the tail at the end of the contract.