Finance advice

Hire Purchase

This is a simple and popular option. It involves you hiring a vehicle from a finance company for an agreed time period. Then, after you’ve made the final payment, the vehicle’s yours. You own it outright. In short: Higher payments. You can own the car after a final payment.

Hire Purchase agreement is one of the most common methods of buying your new vehicle, terms are usually 2-3 years but can be upto 5 if required. You and the finance company agree the initial and monthly payments and the length of the loan. At the end of the term, provided all payments have been made, you become the legal owner of the vehicle. The lender has greater security as they keep ownership until the end of the agreement. This security allows them to offer you better terms.

Benefits

• Once you make your final payment you own the vehicle
• Convenient straightforward application process
• Fixed repayments and interest rates
• Additional protection over a personal loan
• Payments and term to meet your budget
• Keeps existing credit lines free
• There is no need to estimate the mileage at the outset
• Rebate of future interest if you settle your agreement early
• Additional customer protection with regards to the satisfactory quality of your vehicle

Risks

• The loan is secured against the vehicle, therefore if you miss payments on the loan the vehicle may be repossessed

PCP

PCP differs from HP in that you’re only paying the depreciation of the value of the vehicle. This means the monthly payments will be lower as you’re not financing the full value, however if you want to own the vehicle at the end of the term you need to pay a lump sum.

In short: Lower payments. You can change cars more often without the hassle. A lump sum is needed to secure ownership. PCP is common among consumers who want to change their cars regularly, every 2, 3 or 4 years for example. Once the agreement ends you have a number of options. You can own the car outright by paying the “Balloon Payment” or you can hand the car back. Another option is to part exchange for a new vehicle.

PCP works as follows:

1. Tailor the criteria to your individual requirements

2. Deposit & Payment

3. Annual Mileage

4. The loan then takes into to account the Guaranteed Minimum Future Value (GMFV), sometime called the “the balloon payment”. This amount is calculated from the expected value of the car at the end of the loan period

Benefits

• Low initial deposit
• Low monthly payments
• Flexible options at the end of the agreement
• A specified Guaranteed Minimum Future Value (GMFV), therefore protecting you from market fluctuations
• Ability to change car more regularly – every 2 years

Risks

• If you exceed the anticipated annual mileage there may be an excess mileage charge at the end of the contract
• The load is secured against the vehicle as such if you miss payments then the vehicle may be repossessed

 

Take your time. Before signing any finance agreements, ensure you read them through and fully understand the agreement. Don't feel embarrassed if you don't understand some aspect of a car finance agreement. Any questions you have should be answered with ease by the dealership, the broker or the lender that is providing the application form.

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All finance companies will check your credit history using a credit agency, such as Experian, Equifax or CallCredit. Your credit history is a complete record of the finance agreements you currently have and have had in the past, as well as applications for credit that you have made.

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Having an adverse credit history or high outstanding credit could result in you not being approved for vehicle finance. In addition, providing incorrect information during the application process is deemed as fraud. This can affect future applications.

What is car finance?

Car finance is a credit agreement made between you and the lender which allows you to buy a car.

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