Cheshire Cars

How to choose the correct finance deal
28 March 2020

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How to choose the correct finance deal 

Want to know more about car finance

So you have decided to take the plunge and started the search for your next new car. Here I offer helpful advice on the various options which might be available to you whilst explaining just what each offering might mean to you. 

Car dealers are very much able to offer a range of funding options including Hire Purchase, Personal Contract Purchase and Personal Contract Lease being the three most popular in that order. 

Hire Purchase

This option is the overal low cost option and affords you total ownership at the end of the agreement period. This statement is assuming that other options are being offered at the same rate of interest and the amounts and terms are the same for comparison purposes. This point is very apt when I give the advice, and so for the purpose I assume the amount and term of loan is equal in all three cases. Hire purchase is the longest established option of the three here and has been the mainstay of the industry over many decades. If you have decided that the vehicle you are considering is within budget and you expect to own the vehicle once you reach the final payment then Hire purchase may be the best option for you. In the showroom ask about any fees that might be added onto the agreement as these can and do run into many hundreds of pounds. I would suggest that this is a question you seek an early answer to. Fees if applicable are spread throughout the agreement or are added on at the end to the final payment, either way you get nothing for paying them. This fee advice applies to all of the three options being discussed here. 

Personal Contract Purchase

This product was introduced in the late nineteen eighties from my memory with my first recollection being the Ford Options Finance Scheme back in the early days of PCP. The product has some useful benefits and has become extremely popular with new car sales then cascading into used car sales. However there are some caveats that you must be aware of, I will explain these as I go into the product. The product is designed to remove a percentage of the vehicles initial cost from interest calculations until the final payment of the agreement. This amount is calculated on a number of factors, namely the actual make and model of vehicle together with its start mileage and sale price, the length of term and importantly the mileage per year that you expect to cover. Therefore choosing the amount of mileage that you will do is extremely important. If you choose too few then the calculation the agreement is based upon will be incorrect. There is from the start a clause that states you will be expected to be within the total mileage you gave otherwise you will face a mileage penalty at the finish of the agreement should you wish to hand the car back and walk away, if you part exchange the car then you might well be offered less due to the higher mileage? The PCP option means that the amount of the monthly payment will be lower than HP but the overal final cost comparision will be slightly higher after taking into account the lump sum owed at the finish, garanteed future value or GFV for short. The product is useful in that your monthly payments are lower and your options at the end are intact in that your options are to keep the car and pay off the final amount or trade the car in for something else or simply hand the car back to the dealer and walk away without a recourse of debt. This third option though does have some t&c's namely that you have serviced and maintained the car that you have not excessivly damaged the car and finally you haven't exceeded the stated mileage.

Personal Contract Lease

Less popular than the two options above the product is a PCP but without the option to own the car outright at the finish of the agreement. So if you know from the outset that you do not require ownership then it is worth considering otherwise go with either of the two previously mentioned options. 

With all three options the amount of homework that you can do beforehand will be extremely helpful and should help you avoid making a poor decision. Remember after your home buying a car can be the next largest single biggest decision, so treat it with the respect and the care it deserves. Never be rushed into any decision instead take timeout to ask questions with having already a few ready to ask. Remember the nice and new car won't be as new in one or two years time so consider the length of the agreement being realistic about life changing experiences that may lay ahead such as moving areas and moving jobs. Realistically take a no longer term than you need to when buying any car with finance. The shorter period you agree to the smaller the amount of interest paid back and the more equity you will have to use again for your next car. 

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