Car loan has become big business. A wide array of new and used car buyers in the UK are making their vehicle purchase on finance of some sort. It might be in the form of a bank loan, finance from the store, leasing, credit card, the trusty ‘Bank of Mummy & Dad’, or countless other kinds of finance, but relatively few people actually buy an automobile with their own cash anymore. auto roma
A generation ago, a personal car buyer with, say,? 8, 000 cash to pay would usually have bought a car up to the value of? almost 8, 000. Today, that same? 8, 000 is more likely to be used as a deposit on the car which could be worth many tens of thousands, followed by up to five years of monthly installments.
With various manufacturers and dealers claiming that anywhere between 40% and 87% of car buys are today being made on finance of some sort, it is far from surprising that there are lots of folks jumping on the car finance bandwagon to benefit from buyers’ desires to have the newest, flashiest car available within their monthly cashflow limits.
The benefit of financing a car is very uncomplicated; you can buy a car which costs far more than you have enough money forward, but can (hopefully) control in small monthly bits of cash over a period of time. The situation with car finance is that many buyers no longer realise that they usually conclude paying a lot more than the face value of the car, and they don’t watch out for hidden clauses of car finance agreements to know the implications of what they’re signing up for.
To get clarification, this author is neither pro- or anti-finance when shopping for a car. What you must be suspicious of, however, are the full implications of financing an auto – not merely when you buy the vehicle, but over the full term of the finance and even afterwards. The industry is heavily regulated in the united kingdom, but a regulator can’t make you read documents carefully or force you to make prudent car financing decisions.
Financing through the dealership
For most people, financing the car through the car dealership where you are buying the car is very convenient. Additionally, there are often nationwide offers and programs which can make financing the vehicle through the dealer a good option.
This blog will give attention to the two main types of car financing made available from car dealers for private car buyers: the Hire Purchase (HP) and the Personal Contract Buy (PCP), with a simple reference to a third, the Lease Purchase (LP). Leasing contracts will be discussed in another blog coming soon.
What is a Hire Purchase?
A great HP is really like a mortgage on your house; you pay a first deposit up-front and then pay the rest off over an agreed period (usually 18-60 months). When you have made your final payment, the car is officially your own. This is the way that car finance has operated for many years, but is actually starting to lose favour resistant to the PCP option below.
There are many benefits to a Hire Order. It is simple to understand (deposit plus a number of fixed regular monthly payments), and the customer can choose the deposit and the term (number of payments) to suit their needs. You can choose a term of up to five years (60 months), which is much longer than almost every other finance options. You can usually end the agreement without notice if your circumstances change without massive penalties (although the quantity owing may be more than your car is worth early on in the agreement term). Generally you will wrap up paying less in total with an HP than a PCP if you intend to keep the car following your financing is paid off.