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Which Is The Right Finance Option For You?

Back in the days before the World Wide Web, car ownership was a relatively straightforward transaction. Buyers would pay the cost outright or they would get a bank loan. Alternatively, they would put down a deposit and pay the rest over a period using what was then called hire purchase. Hire purchase is just what it sounds like: A regular amount is paid over an agreed period of time at the end of which the car is fully owned by the buyer. Things have moved on.

Obviously, it is still entirely possible to purchase a vehicle outright, either with cash or a loan. For most people though, the trend towards a personal or business contract seems to be the way forward. This is because it is possible, through leasing arrangements, to take possession of a new car at a reasonable monthly cost to suit personal budgets. These deals can often optionally include servicing, vehicle excise duty and even insurance.

The 21st Century Way

Car finance has become very much more flexible, available and with many incentives, but with that flexibility comes a degree of complexity. It can sometimes be a bit confusing, trying to understand which is the best way forward based on need, circumstance and personal finances. Hopefully, this handy guide will shine a light on the best deal to suit:

Personal Contract Purchase (PCP).

With a very wide choice of vehicles available, PCP offers a way into new car ownership and it is very popular, although it can be the more expensive option. It works like this: Within any given individual budget a deposit is paid and a monthly, affordable payment is agreed for a period of years. At the end of that period the buyer agrees to pay a final ‘balloon’ payment and takes full ownership of the car or simply hands it back.

This is probably the best deal for people who get to really like their motor and want to keep it, long term, and means the customer owns the car for the term and receive the ownership documents in their name. Further, this option also allows owners to change their car mid term, a useful extra. For further details, here is a link to our relevant page.

There is a caveat to this however: Failure to, for example, stay within the agreed annual mileage or failing to maintain the vehicle correctly could lead to penalties. This is because that final payment at the end of the agreement is dependant upon the car’s resale value at that point.

If mileage is too high, or condition is neglected then that balloon payment ‘balloons’ with penalties, hence the name. Even if the car is handed back, those penalties could still apply. This shouldn’t be of concern to the careful driver but it is something to be fully considered. Alternatively, there’s this:

Personal Contract Hire (PCH).

This is straightforward leasing. A basic deposit is paid and a monthly payment is agreed. The important thing to be considered with PCH is that the payment is affordable long term and is within a sensible budget; it is all too easy to overstep the mark when tempted by a more expensive model.

That said, what follows is plain sailing. Basically the car is ‘hired’ and at the end of the agreed period it gets handed back to the finance company and fair wear and tear is expected. The deal can include, as mentioned, fault repair, servicing, and even insurance. Cars lose value fast, particularly in the first year so this doesn’t suit the buyer who wants to retain the vehicle. Otherwise, this is a great way to enjoy a new car that would otherwise be out of reach.

Remember though; this is not nor ever will be your own car and the finance company will expect the lessee to take special care of the vehicle. Penalties can apply for exceeding the agreed annual mileage for example, so don’t be quoting low use as a reason to bring the monthly cost down. Be realistic.

Business Contract Hire (BCH).

This is the business version of PCH. In short, a company, rather than an individual, lease the car. This helps with forward planning thus making fixed costings easier. Monthly payments can be calculated based on a predicted level of depreciation of the vehicle’s value. That makes it a sensible cost saving on buying a vehicle outright.

So there it is. The modern way to new car ownership. PCH is very popular, knowing that car will be fixed if faulty and never having to worry about an MOT test again. Of course, it will never be yours but at least you know that at the end of the lease period, another new car is waiting.

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Feb 24, 2021

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