When asking yourself the best way to finance a car, it’s best to be fully aware of every type of finance agreement available.
Some agreements may be more beneficial for a customer who wants to change car regularly, while others may be better suited for someone who wishes to buy the car outright at the end of the finance contract. A person’s credit score may also impact which kinds of finance agreement are available to them. Below is a quick summation of the most popular ways of financing a car:
Car credit: PCP
Personal Contract Plan, (PCP) allows drivers to make an initial down payment then pay monthly across a three or five year period.
Before the contract starts, a guaranteed future value is placed on the car, which includes depreciation. Monthly instalments pay off the depreciation of the car, and not its entire value, over the course of the term.
At the end of this time a final payment, known as a balloon payment, is made to secure the equity in the vehicle.
Car credit: HP
Hire Purchase (HP) involves the payment of a deposit and monthly instalments across the hire agreement until the entire value of the car is paid off. This means ownership transfers to the lessee.
It does not require the lessee to estimate mileage at the start of the hire purchase agreement, so there are no excess mileage charges.
Monthly payments may be higher than some other finance options, such as PCP, as you’re paying off the full value of the car.
Selling the car requires settling the finance, while repayments must be fully completed to acquire ownership.
Car Credit: Personal Contract Hire (PCH)
Personal Contract Hire (PCH) is a long-term rental that does not result in ownership of the asset. Lessees are required to keep the same car over the agreement. The time of the lease is fixed, as are the monthly payments.
Subscription sites such as Drover offer consumers the opportunity to swap cars around regularly, essentially hiring each car out for a fixed set of time. This is best for consumers who don’t want any responsibility of outright ownership, may not need a car all the time, and like the idea of driving different cars regularly.
Hopefully this quick explainer has helped you to find the best way to finance a car.