When you buy a vehicle, it’s likely you’ll be offered finance where you will pay for the vehicle over fixed instalments.
There are multiple types of finance packages available – including hire purchase, personal contract purchase and leasing.
We’ve asked Luca Royle, our Commercial Funding Manager, to outline various options that are available, as well as revealing the pros and cons for each, to help you make a decision that fits your needs and financial circumstances.
Take it away Luca
With so many options, vehicle finance can seem complex and complicated.
Below, I’ve explained the main finance options with general pros and cons for each, along with key information to help you decide which is best for you.
Hire purchase
With a hire purchase (HP) agreement, you’re hiring a vehicle directly from a lender, which means you’ll pay an initial deposit, and then make monthly payments for the cost of the vehicle. You do eventually gain ownership of the vehicle, but only after your final payment has been received.
While the finance company remains the legal owner during the HP agreement, you’re recorded as the registered keeper. This means you’ll usually need to cover servicing and vehicle insurance costs.
Pros
- After your final payment, the vehicle is yours to keep.
- Payments will usually be a fixed amount over an agreed period.
- As you will eventually own the vehicle, you don’t need to worry about predetermined mileage restrictions or what condition the vehicle is in at the end of the agreement.
Cons
- Monthly payments can be higher than other finance options.
- You don’t own the vehicle until your last payment is received.
Personal contract purchase
A personal contract purchase (PCP) agreement typically involves paying a deposit, followed by monthly instalments over a fixed period – these payments will vary based on the pre-agreed mileage limit. Like hire purchase agreements, you may have to pay for servicing and general upkeep, unless it is included as part of the package.
At the end of the PCP period, you then have the choice to either return the vehicle or purchase it outright by paying a lump sum. This is sometimes known as a balloon payment, which will have been agreed at the start of the deal based on the minimum future value of the vehicle.
Pros
You get to decide whether to keep the vehicle at the end of the agreement.
As there is a large lump sum payment at the end of the agreement, monthly payments tend to be lower than standard HP agreements where there is no balloon payment.
Cons
If you decide to keep the vehicle, the final lump sum payment can be expensive.
Interest on the final balloon payment is included in the monthly payments, regardless of if you want to keep the vehicle at the end or not.
If you return the vehicle at the end of the agreement, you’ll be charged for any damage or excess mileage.
Personal car leasing
Personal car leasing involves putting down a deposit and paying monthly instalments on a car over a fixed period. Unlike PCP, there is no option to buy the car outright at the end of the agreement and you are essentially renting the car.
Pros
- Usually, it is one of the most affordable ways of driving a new car in the short term.
- Additional extras such as road tax, breakdown cover and annual servicing are sometimes included, but this can vary.
Cons
- You will never own the vehicle, the car is always handed back at the end of the lease agreement.
- You must make sure you keep on top of mileage limits.
- The car must be kept in good condition, otherwise you may face extra charges when you return it to the dealership.
Here to help
If you are thinking of buying a vehicle for yourself or your business and would like some more guidance, our team can help. Not only do we have a track record of securing funding for purchases of vehicles, to help streamline the process, but we are also able to review existing offers across our panel of funders, with a view to reducing costs and saving clients money.
To speak to our commercial funding team today, fill out the contact form below.
