We all want to find the best car finance deals when purchasing our car. Finding the best car finance type is possible, but you need to understand a few things, such as:
The Annual Percentage Rate (APR): the lower, the better
Additional payments: such as setup fees or early repayment charges
Finance term length and total sum payed back: long term, but cheaper rates might look appealing, but do you calculations to find out if it’s costing you more in the long run.
1. Personal Contract Purchase
Want to try the Personal Contract Purchase (PCP) plan?
In this plan, you make an initial payment, followed by a series of monthly payments and a final large payment (called balloon payment or GFV), which is optional. You will have the option to buy the car at a previously set price or simply give it back. In most cases, you will have a fixed mileage contract.
The final payment is calculated based on the predicted future value of the car at the beginning of the agreement.
For example, a £30,000 PCP plan would look like this:
- Large initial deposit: £10,000
- Monthly deposits: 36x x 333 (totaling ~£12000)
- Final payment: £8,000
One thing to keep in mind is that you don’t have ownership of the car until you make the final payment. This plan is ideal if you want to change your car at the end of the contract period.
2. Hire Purchase
Using Hire Purchase (HP) simply means you secure a loan against the car, usually for a 12-60 month period. Basically you pay the entire price of the car through series of monthly payment, the car becoming your property after the last payment. It’s like taking out a bank loan, then paying it back with interest.
Sometimes the dealer asks for an initial deposit, and if so, the bigger the deposit, the less your monthly payment costs will be.
This is how a £30,000 HP plan would look like:
36 x 833 (totaling ~£30,000) + interest
3. Lease Purchase
Simply put, the lease purchase (LP) is similar to PCP and has even lower monthly payments and and APR, with the exception that you have to purchase the car at the end of the lease term and get just walk away.
Since the funder is exposed to less risk, you will benefit from a slightly lower interest rate and no fixed mileage costs.
This is ideal for if you want long term financing and plan on buying an expensive car.