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We have previously discussed the four main types of car finance that are most popular amongst motorists in the United Kingdom, but there will always be new visitors to our website, and also new drivers who are just beginning to take steps towards purchasing a vehicle on finance for the very first time. In this article, we will identify all four of the top car finance options, noting their core elements and why a driver may or may not wish to use a particular method as their in-road towards buying their initial vehicle.
Personal Contract Purchase
Personal Contract Purchase (PCP) is generally the most popular car finance plan amongst motorists, and it isn’t hard to see why. It essentially breaks up the cost of the vehicle into multiple parts, and the overall price is determined not by what the car would be worth at the beginning of the plan, but by what its projected worth is set to be at the end (and if a PCP is set to be the maximum length of seven years, its value will be even lower when all is said and done). Another reason why the PCP is so commonly preferred is the flexibility involved at the final stage, whereby the driver can decide whether they want to make a final balloon payment to keep the car for good, whether they want to return the vehicle and go down a different route, or whether they want to use the reduced value that the vehicle has at the end of the agreement and put that towards a new, similar deal for a different model, with the original car’s value helping to cover some of the initial costs. There is also the perk of being classed as owning the car from day one with a PCP, even though all of the payments still need to be made, which helps from a motivational standpoint in that you know the vehicle really does belong to you, costs permitting. The main downside of a PCP goes back to a point we noted earlier: the payments are spread out, which means that a significant deposit payment of around 10% must be made before the plan officially begins, and that last balloon payment is also a rather high figure, not to mention the interest that would be tacked onto the required monthly payments under the terms and conditions that a Personal Contract Purchase finance plan would require.
Personal Contract Hire
The main difference between Personal Contract Hire (PCH) and the aforementioned Personal Contract Purchase (PCP) comes in the final words. For the latter, the “Purchase” means you plan to buy the car, though you can change your mind if you wished to. In the case of the former, though, the word “Hire” means that your intentions are merely to lend the car for the duration of a plan, and that you will return the vehicle when the final payments are made. This leads into the main benefit of a Personal Contract Hire finance plan: because the idea is to just borrow the vehicle for as long as the deal lasts, you will not have to pay quite as much money as you would for an alternative plan where you are hoping to purchase the car outright at the very end. This, consequently, opens the door for you to consider some vehicles, or even the ages and mileages of the same models, that you would previously have not been thinking about, because suddenly your price range is open to including a greater range of motors. On the downside, though, because you are only hiring the car, you will never have full ownership of it, which might prove tricky in the event that you cannot keep up with payments as the finance company can simply take it away with minimal fuss on their part. A Personal Contract Hire can also prove to be a problem if you end up really taking to your car and you end up feeling like you want to buy the vehicle. Of course, there is nothing to say that you absolutely cannot buy the car once the contract has come to an end, but it will end up costing you more money than you would have under, say, a PCP plan, because it will almost treat the vehicle as being part of a brand new, separate purchase, as opposed to being tied into the terms of the original deal and having its buying value altered accordingly, which would be the case for a PCP. Either way, though, a Personal Contract Hire finance plan is ideal for someone wishing to merely loan their preferred vehicle with no intentions of making a purchase, and with their own finances in place to keep up with what would end up being reduced payments compared to other plan options.
A Hire Purchase (HP) sits somewhere between a Personal Contract Purchase and a Personal Contract Hire. It basically assumes that you are hiring the vehicle right up until the final payment, at which point you will buy the car and claim full ownership of it. That sounds familiar to other plans, but it works because the amount required to pay per month, aside from the initial deposit, will be calculated without the requirement of a final balloon payment, which means that the last regular payment really does bring an end to the deal and make the driver the full owner of the vehicle. It is easier for the driver to find a large amount once, prior to the deal starting, than it is to also find an even larger flat fee that allows the motorist to claim the vehicle as their own for good. What’s more, the driver is able to have a say on how much of a deposit they are paying, which could potentially bring down the monthly amounts if they opt for a higher deposit, and there are no mileage restrictions either, which makes a Hire Purchase even more appetising. Read about our no deposit finance here. However, while the absence of a balloon payment is appealing on paper, in practice it will increase the amount of money to be spread out elsewhere across the deal; if you assume that the balloon payment on a PCP plan would be around £2,500, if you take the option of the balloon payment away, suddenly a driver has to find a way to find that £2,500 across their monthly payments, which depending on the deal’s duration could lead them to be scrambling at times to keep up with their regular costings, and/or make for an eye-watering deposit. HP in most occasions tend to be cheaper low interest rate compared to the other car finance option.Nevertheless, on balance, a Hire Purchase definitely has its benefits and will appeal to those who will find it easier to spread out the total cost of a car more evenly rather than dividing it up into two larger blocks and dozens of smaller chunks.
A Personal Loan (PL) is the real alternative, as you are doing the deal based on specifically lending a set figure to cover a car purchase. This opens the door for you to work with just about any dealer around, because a Personal Loan is a more direct approach where you work more closely with the seller of the vehicle. It also means that you can be driving the car straight away, and it sets you up in a better position to resell the car in the future as there is no middle man involved. The big downside, though, is whether the dealer is trustworthy enough, because the other three finance plans involve thorough checks on the car provider. A Personal Loan does not have this, so you need to be very careful as to who you opt for in this scenario, and having poor credit may also see you rejected outright for a Personal Loan. Nevertheless, this option does work for a significant number of drivers, but it pays to do your homework and to make sure you are absolutely covered for any scenario if you go down this path.
These are the four major options for a car finance plan, and each of them comes with specific pros and cons. It really comes down to what the driver is comfortable with and what they require; these are the factors that will ultimately determine which type of plan is right for them and their circumstances. There is no right or wrong for any of them, but more rather a case of identifying which aspects of a finance plan are most suitable to their preferences. In any event, though, there is plenty of choice to be had, and all four finance plans will allow a driver to end up buying a vehicle that matches everything they are looking for when it comes to features and pricing, and we provide all four of these plans with plenty of stock to cater to each one here at Accept Car Finance.
You can get more details about the different types of car finance available at Accept Car Finance by speaking to us on 01925 599079.
As part of our services, we deliver the car to your premises of choice within the UK. Lately we have delivered cars in most major towns including the Southern cities & midlands: (London, Birmingham, Leicester), Northern cities (Manchester, Liverpool, Sheffield, Leeds, Newcastle), and Scottish cities (Edinburgh, Glasgow).
** As with all financing options, car finance comes with risks. If you cannot keep up with repayments your car is at risk of being repossessed and this will affect your file and lower your credit score.