Buying the motor car overall
If you have the funding to spare, buying a car outright may be a practical option as you will not be making any interest payments – the retail price you negotiate is the price you pay. You also have the convenience of owning the auto outright from the start but it will be a large capital expense with no long term protection.
Hire purchase HP
This has long been the traditional way of financing a auto and is often arranged through a dealer. You can, of course approach car finance companies directly and it will certainly be valuable to get a wide range of loan quotations. In principle you are effectively leasing a car which comes with a “right to buy” – but please remember you do not own the motor vehicle until every repayment is made. HP contracts can be quite versatile and the premiums rather competitive but not as good as a personal loan from the bank and the monthly payments will be greater than a PCP. Needless to say if you do not keep up with the installment payments then the car can be repossessed.
Personal (car loan)
Generally speaking you already have the cash for a auto loaned to you by a bank or building society before you venture on to the car dealer. You buy the auto outright and the repayments are made to the loan company. Of course it pays to shop around. One of the strengths is that the loan is not secured against the vehicle so it‟s yours to sell when you wish and generally personal loan rates are quite favourable. If, however, your credit rating is not so good the monthly payments may be quite high.
Car leasing
With a car lease you will usually pay a regular monthly sum over a two to four year term and at the end of the agreement you simply just give the vehicle back. Think of it as a (very) expanded car hire as the car never belongs to you even though some leasing some leasing companies will give you the option to buy the car at the end of the term. This alternative generally only requires a small deposit and at the end of the lease you just walk away (usually into another new auto). Some individuals however, may not like the idea of never taking possession and there will be a mileage limit on the lease with premiums levied for going above it.
Personal Contract Plans PCP
A Personal Contract Plan (or PCP), is a equivalent process to hire purchase but you don‟t buy the car at the end
of the term. Instead the manufacturer/dealer works out how much the car will be worth at the end of the term and you pay off the variation, plus interest, known as the “balloon payment” Minimum Guaranteed Future Value (MGFV). At the end of the term you can actually buy the car outright, disappear or use the difference as a downpayment on your next vehicle. PCP‟s offer lower monthly payments with routine maintenance charges often integrated and they also have some flexibility in that if the car is worth more than the forecasted value you can sell it on; if it‟s worth less you can hand it back to the auto finance company. Again there will be a mileage limit that needs to be adhered to and although the monthly payments will be lower a PCP can work out more expensive than HP over the full lifetime of the loan.
Some other important things to consider:
Always ask for the “total amount payable” to be made clear. This is the total cost to get the car after all interest payments and additional fees are included. Also be aware of additional charges – such as
management and certification fees that can be added to the total bundle and increase the car finance company‟s profits.
Most importantly be careful of taking on more credit than you can actually manage. It is never a good idea to extend your mortgage to finance a motor vehicle as you will end up paying far more in the long term. Always think about what you can easily manage on your funds. Most car dealers and finance companies will provide an internet based car loan calculator so you can decide the affordability and it‟s always best to build in a comfortable “affordability cushion” in case your situation change.
Comments on this entry are closed.