With most people after purchasing their home, buying a vehicle usually with some kind of credit finance is the 2nd largest purchase item investment. We recommend reading our evaluation below-detailing pros and cons when proceeding with different types of vehicle finance options available to consumers including Personal Loans, HP Hire Purchase Agreements, PCP Personal Contract Purchase Plans, PCH Personal Contract Hire Leasing or simply paying with a credit card.
Vehicle Finance – Personal Loans
Traditional personal loans provided by a high street bank or building society are still a popular option for financing the purchase of a vehicle. However, please check that your home property is not secured against the loan debt. This could mean the loss of your home in the event you are unable to keep up with regular repayments to the lender. Also, with the recent global recession, it’s possible to receive very competitive low fixed interest rates and we recommend shopping around and conducting your research with the many providers listed online. If you don’t have a good credit history be sure to avoid personal loans available with high APR annual percentage rates. Loans with high interest rates are often made available by dealerships when customers are struggling to gain credit.
Vehicle Finance – HP Hire Purchase Agreements
This type of vehicle finance is commonly provided by car dealers across the UK and is usually quick and simple to arrange. When entering into a Hire Purchase Agreement prior to buying a new vehicle you will need to pay the deposit usually around 10% of the total agreed price. With flexible repayment terms typically between 12 to 60 months and very competitive interest rates, this type of vehicle finance enables many buyers to conveniently buy a new car. However, please be aware HP Hire Purchase Agreements are not normally associated with providing competitive vehicle finance repayment rates when buying a second hand used car. You must also be aware that you don’t legally own the vehicle until the final payment has been fulfilled.
PCP Personal Contract Purchase Plans
A common alternative to Hire Purchase Agreements are PCP Personal Contract Purchase Plans normally associated with lower monthly payments. This is due to the loan agreement being for the difference when comparing the vehicle price brand new and the predicted vehicle value at the end of the hire agreement term outlined in the policy. This means at the end of the Personal Contract Purchase term agreement you can simply trade in the car and start again with a brand new vehicle. Or return the car into the dealership with nothing more to pay. You also usually have the option to make a final ‘balloon’ payment of the car’s resale value permitting you to own the vehicle outright.
However before committing to a Personal Contact Purchase agreement, please be aware that many policies are attached to annual mileage terms. This can become costly if you exceed these stipulated mileage limits within the document contract obligations. You must also be aware that the predicted value of the car is often a lot lower to the actual value when you come to return the vehicle. Also, along with these important considerations please be aware you could be financially liable for any damage, excessive wear and tear including paintwork scratches or scrapes even if you are not personally responsible.
PCH Personal Contract Hire Leasing
With this arrangement, you normally pay the dealership a fixed monthly fee as per agreed in the contract so you can use the car. However, you will also have the added benefit that any required maintenance and all servicing is covered throughout the lease period. Provided you don’t exceed the mileage limit specified in the signed contract. With PCH Personal Contract Hire Leasing agreements you are able to budget your motoring costs with a fixed monthly payment due to all servicing and maintenance being included. Even though PCH Personal Contract Hire Leasing usually incurs higher monthly costs compared with PCP Personal Contact Purchase Plans, you don’t have to worry about the vehicle depreciating in value, but the car will never be your own.
Credit Card Payment
With many credit card providers advertising very attractive offers with 12-month interest-free periods, using this method to pay for a car is a tempting thought. Also for additional peace of mind, a credit card can sometimes provide extra protection. Especially if the car is faulty or unreliable whilst still under warranty when the dealership refuses to repair at their cost. However, you must be aware that some automotive dealerships charge up to 3% for card handling fees when purchasing the vehicle.
Vehicle Finance Advice
When buying a used vehicle with cash using a traditional bank loan, hire purchase agreement or credit card we recommend seeking the services of an independent professional mechanic. To check the vehicle thoroughly for any faults or damage prior to payment for peace of mind. It’s also good practice to request a history report to check if the vehicle has been involved in any previous accidents and repaired along with verifying if outstanding finance is still owed by previous owners. When entering into a lease agreement or purchase plan always ensure that any historic damage present with the vehicle exterior and interior are clearly documented and agreed to avoid paying for non-fault repairs at the end of your contractual term.
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