Car finance is now a major business. Many used and new car buyers within the UK are making their car purchase with finance or some other form of finance. It could take the form of financing from a bank loan, at the dealership leasing credit card, traditional ‘Bank of Mum and Dad’ or any of the other types of financing, however, very few actually purchase a vehicle using their own money.
In the past when a car owner was a private buyer, someone with, for example an amount of PS8,000 to spend typically would have purchased cars that was worth PS8,000. In the present, that same amount will be used to pay for the deposit for the car that could be worth tens of thousands and then followed by up to five years of payments per month.
With numerous dealers and manufacturers saying that anything between 40 and 87 percent of all car purchases are currently made through credit so it’s not surprising that there are many people who are jumping onto the car finance bandwagon in order to make money from customers’ desire to own the latest, extravagant car they can afford within their monthly cash flow limits.
The attraction for financing your car simple; you can purchase a vehicle that is significantly more than you’re able to pay for upfront, but you can (hopefully) be able to manage smaller monthly installments of money over a certain period of time. The issue with financing a car is that most consumers don’t know that they’re typically paying more than the actual value of the vehicle, and they don’t take the time to read the fine print on contracts for financing cars to comprehend the implications of the contract they’re signing.
To be clear, this author is not in any way pro or pro-finance when purchasing a vehicle. What you should be aware of are the full consequences of financing a vehicle – not just at the time you purchase the vehicle, but also over the duration of the financing and later. The business is highly regulated in the UK however, an authority can’t force you to take your time reading documents or require you to make smart financial decisions regarding your car.
For many choosing to finance the car through the dealer from which you purchase the vehicle is extremely convenient. There are usually special offers or programs that could make financing the vehicle through the dealer an appealing choice.
An HP works just like the mortgage you get on your home that you make a down payment in advance and take the remainder over a set time (usually 18 to 60 months). When you’ve paid the final installment, the vehicle is legally yours. This is how car finance has been operating for a long time however it is beginning to fall out of favor with the PCP option.
There are many benefits for the Hire Purchase. It is easy to comprehend (deposit along with a series of monthly fixed payments) and the purchaser can select the deposit amount as well as the term (number of installments) according to their preferences. It is possible to choose the term as long as 5 months (60 months) which is more than other financing options. You are able to terminate the contract at any time when your circumstances change, without hefty penalty charges (although the amount you owe could exceed what your car will be worth in the early stages of the contract term). Most likely, you’ll be paying less with an HP agreement than with PCP, if you intend for the automobile to be kept until the loan is paid in full.
The primary drawback of an HP in comparison the PCP option is the higher monthly installments, which means the value of the vehicle you are able to afford is lower.
An HP is generally ideal for those who intend to keep their vehicles for a long period of time (ie over the loan term) or have a substantial deposit, or are looking for an easy plan for financing their car that does not have a end-of-the-line when the time comes to end the contract.
PCPs are often called by other manufacturers and finance companies (eg BMW Select, Volkswagen Solutions, BMW Select, Volkswagen Solutions, Toyota Access, etc. ) This is extremely popular , but it is more complex than HP. HP. Many new car finance offers that are advertised nowadays are PCPs and typically dealers will attempt to encourage you to go with PCPs over HP since it’s more likely to work for the customer.
As with in the HP previously mentioned, here you make an upfront deposit and receive monthly installments over the course of a. However, the monthly installments are less and/or the duration is longer (usually the maximum. that is 48 month) due to the fact that you are not paying for the entire vehicle. When you reach the end of the period, there is still a significant portion of the loan that is unpaid. It is typically referred to as the GMFV (Guaranteed minimum future value). The company that finance cars guarantees that, within a set of conditions, the vehicle can be valued at the least as the balance of the loan. There are three choices:
1.) Return the vehicle. The car will not be returned to you. in return, however you don’t have to take out the remaining amount. That means that you’ve been renting the vehicle throughout the duration.
2.) Pay back the remainder of the amount due (the GMFV) and keep the vehicle. Since this could be a lot of dollars, it’s not a feasible alternative for most people (which is why they are financing the car initially) and typically results in…
3.) Part exchange the vehicle to purchase a brand new (or more recent) one. The dealer will determine the value of your car and handle the financing payout. If the value of your car is more than GMFV it is possible to use this difference (equity) to pay an installment for your new vehicle. For Used Cars in Nashville in USA, comparatively less money is required but for new cars it is better to hire Car Financing in Nashville service. This service is better to get new car and may be used one also.
The PCP is best suited to those who are looking for a brand new or similar vehicle and plan to replace it after the expiration of the contract (or perhaps sooner). For private buyers typically, it is less expensive than a lease or contract hire finance. It is not tied to coming back to the same dealer or manufacturer to purchase your next car because any dealer can make payments on the finance on your vehicle and then sign the contract on your behalf. This is especially beneficial for those looking for an expensive vehicle with less cash flow than can be achieved by using an HP.
The drawback of PCPs is that it can make you commit to a pattern of having to change your car every couple of years to avoid having a huge payment at the end of the contract (the GMFV). The borrowing of money to pay the GMFV and to keep the car generally results in the option of a monthly installment that is much less than starting the new PCP and an entirely new vehicle, which means it is almost always a way to entice the owner to replace the car with a different one. This is why dealers and manufacturers like PCPs as they keep you returning each year rather than maintaining your car for 5-10 years!
An LP is sort of hybrid of an HP and PCP. It has a deposit, and lower monthly payments, similar to PCP, but with an enormous final payment at the close of the contract. But, unlike the PCP, this last payment (often known as balloon) isn’t assured. This means that if the vehicle is worth less than the amount due and you decide to sell or part-exchange it, you’ll need to pay the extra (called negative equity) before even considering making a payment for a deposit to purchase the next car.
What is essential for anyone who is buying a car on finance is to go through the contract thoroughly and read the contract carefully prior to signing any contract. A lot of people make the error of purchasing a car through credit only to find themselves incapable of making the monthly installments. Because your financing term could last for up to five years, it’s essential to be aware of what could happen to your life during the five years. Many sports cars with a high amount of financing have required a return frequently with severe financial consequences for owners due to unexpected pregnancy!
In the process of buying the car you want to finance, it is important to think about and discuss the different financing options and be aware of the advantages and disadvantages of various financing options for cars to make sure that you make informed choices about the money you spend.
Born in Australia, Stuart has had an interest in automobiles and the automotive industry for more than thirty years. He’s been working in the retail sector and in Australia as well as in London.
Stuart has merged his extensive expertise in all things car-related along with his own personal experiences of selling cars and delivering top levels of satisfaction to provide a unique and personal buying service to London. The Car Expert gives specific and customized suggestions for those looking for a used or new vehicle in London.