Additional Ways to Finance your Next Car

By: Matthew J James

Traditionally, getting the right personal car finance deal used to mean deciding which bank to take out a loan with. Nowadays, there are now more ways to finance your next car, with the addition of Hire Purchase, Personal Contract Hire, Personal Contract Leasing and Lease Purchasing. This article aims to provide more information so that you find the right personal car finance deal.

Hire Purchase

Hire Purchase is the often used alternative to a bank loan when it comes to financing a new car. The finance company will pay the dealer for the car, and then you pay back the finance company. You can pay for the car over an agreed period of up to 72 months, and there is no VAT charged on top of the monthly repayments. Once the last repayment has been made, the vehicle is yours.

Personal Contract Hire

Personal Contract Hire is a way of leasing a vehicle over a set time period. The annual mileage is set by the lease company and is usually 10,000 miles per year, although this can be changed, but will increase the monthly payment. It is also possible to incorporate maintenance into the monthly payment. Personal Contract Hire is very similar to the Contract Hire leasing schemes that businesses use, but for individuals. The main advantage of a lease is that the lease company takes on some of the expense of car ownership such as depreciation. Most vehicles will depreciate by 40% in the first year, and will have lost 60% of their value after 3 years. Prestige brands will hold their value better than mainstream brands, but are not always affordable. Perhaps you will be able to afford a bigger or better car using Personal Contract Hire than with a bank loan, or Hire Purchase.
There is usually a small deposit to pay when taking out the Personal Contract Hire plan agreement, and a lower monthly repayment compared to Hire Purchase. Also, the family budget can be accurate and forecast for years in advance, as breakdown insurance and maintenance costs such as servicing, exhausts, tyres and batteries can be included in the monthly payments. There should be no costly surprises if the car breaks down and needs a lot of work doing to it.

Personal Contract Hire is also a popular choice for company car drivers who have been given a car or mileage allowance instead of a company car.

Personal Contract Purchase

Personal Contract Purchase is similar to Personal Contract Hire but with additional options at the end. Lower payments are achieved as there is a Guaranteed Future Value (GFV), which states what the vehicle will be worth at the end of the lease period.

Using Personal Contract Purchase helps to save money and provides peace of mind. However, depreciation will need to be considered, as this helps to determine the GFV. A car that depreciates more will be worth less, and so have a smaller GFV at the end of the lease period. At the end of the lease period, there are three options: give the vehicle back to the lease company, purchase the vehicle at the GFV, or part exchange the vehicle. Part exchanging the vehicle is the most popular choice as it allows any equity (what the vehicle is worth over and above the GFV) to be used against another car.

Lease Purchasing

Lease Purchasing is similar to Hire Purchase, but there is a final payment (balloon payment) at the end of the lease period, which explains the low monthly payments. Finance can be used to pay the balloon payment. This method can help you afford a car that was previously out of your budget, but the final payment may still be very high, and possibly more than the value of the car.

Whether it's a Ford van or a Mercedes C Class you want, why not see which personal car finance method is best for you.

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