Getting a new car is one of those things in life that sounds fun and exciting but in reality, it’s a rather long and boring process. Another part of the challenge is working out how you are going to pay for the vehicle, especially with so many different options to choose from. Here’s where we help to make that choice easier!

Outright Purchase

Outright purchase is buying your vehicle in full. It is one of the better options to go with and is usually the cheapest way to buy a vehicle as you would save having to pay interest. Outright purchasing a vehicle means that you own the car outright, so if you were to experience financial difficulty you could sell the car and all the money you got for it would be yours. When outright purchasing a car make sure you have enough savings to cover you for other unexpected costs. However, a lot of people cannot afford to pay the price of a vehicle in full so would be better suited to one of the various finance packages.

Hire Purchase (HP)

Hire purchase is one of the simplest types of finance. You pay an upfront deposit of your choice followed by fixed monthly payments over 12-60 months with the option to own the vehicle at the end. However, this means you do not own the vehicle until the final payment has been made. This means if you miss payments you could lose the vehicle. Once you have paid off half of the total amount payable, you may be able to return the vehicle without having to make any more payments. Hire purchase can be applied to both new and used vehicles.

  • Advantages
    • Fixed monthly payments, so you will always know what you are paying.
    • Low deposit
    • Fixed interest rates
  • Disadvantages
    • You don’t own the car until the final payment is made.
    • Your monthly payments will be higher if you provide a low deposit

Personal Contract Hire (PCH)

Personal contract hire is a form of finance where you never actually own the car. It is similar to personal contract purchase but if you are not planning on purchasing the vehicle at the end, this is a better option. Again, you must pass a credit check before you set up the PCH. You can then use the car as long as you stick to the mileage agreed on your contract. The difference with PCH and PCP is with PCH costs such as tax are included. You only ever have to pay for fuel. You must also keep the car in good condition. At the end of the contract, you simply hand the car back.

  • Advantages
    • Not being tied to purchasing the vehicle.
  • Disadvantages
    • Your ability to make the monthly payments will not be checked so you need to work out what you can afford before proceeding.
    • Mileage restriction, there are charges if you exceed this.
    • Any wear, tear or damages such as scratches you will receive additional charges.
    • You never own the vehicle and must return it at the end of the agreement
    • If you want to end the contract early you have to pay fees

Personal Contract Purchase (PCP)

Personal contract purchase is a more complicated finance type to purchase a vehicle. It is very similar to hire purchase, but you have three choices at the end of your contract; return the car, pay the residual value or use any remaining equity towards purchasing a new vehicle.

Firstly, you must pass a credit check to set up a PCP. Then you must pay a deposit, this is for you to decide how much you would like to put down. You are then free to use the car as you please and make your monthly payments, but you must stay within your mileage restriction. At the end of the agreement if you wish to keep the car you must pay the final payment, this is often called a balloon payment. This balloon payment is the guaranteed future value based on what the dealer thinks the car is now worth. The balloon payment can range from a couple of hundred pounds to a few thousand. If you do not have the money for the balloon payment you will have to take out a loan or refinance the remaining balance. If you no longer wish to keep the car you can hand it back with no further payments.

  • Advantages
    • This is often a good payment option if you wish to change your car every 3-4 years.
  • Disadvantages
    • Your ability to make the monthly payments will not be checked so you need to work out what you can afford before proceeding.
    • Mileage restriction, there are charges if you exceed this.
    • Final balloon payment can sometimes be too much.
    • PCP is often the most expensive payment option
    • Any wear, tear or damages such as scratches you will receive additional charges.
    • To end the deal early you must have at least paid off half of the total amount payable.

Want to know more? Contact us on 01473 372020 or email us at sales@tysoncooper.com.