Car Finance Explained
So you want to buy a new car? You’re not alone! The UK car market is soaring, with more cars than ever sold in 2015. A record 2.6 million new cars were bought, showing people are now keener than ever to pick up a brand new car.
However, not many can afford to pay outright for a new vehicle. Instead, many dealerships, like Motorparks, offer a range of finance options to help you get on the road without breaking the bank.
The options available can be confusing though. With this in mind, here’s our guide to car finance explained.
PCP – Personal Contract Purchase
With 705,000 people using a personal contract purchase deal to buy a car between July 2014 and July 2015, PCP is an incredibly popular way to get your hands on a new car.
While the options vary, they all work in a similar way. You’ll pay a deposit, then make monthly payments for an agreed term – usually three or four years. At the end of this term, you pay an agreed price, known as the ‘balloon payment’ to purchase the car OR hand back the car to the dealer.
Essentially, this makes PCP similar to leasing a car, but for a far longer term and with manageable payments and the option to buy. PCP deals are incredibly popular as you don’t need to arrange finance with a third party or take out a loan, so they’re considered affordable.
Some PCP deals also offer free servicing and maintenance and other bonuses, allowing you to drive relatively hassle-free. Get in touch about our PCP deals to find out more.
PCH - Personal Contract Hire
A personal contract hire, or lease purchase, works in a similar way to PCP in that it is tied to monthly payments. However, unlike a PCP deal, you are not given the option to buy — instead you automatically hand the car back. You could then choose a new vehicle under the same scheme. Get in touch today if you’re interested and we’ll guide you through our PCH deals.
Another option is hire purchase. This is a more traditional finance deal whereby you pay the full value of a car split by a deposit and monthly installments. After that period, you’ll own the car, although depending on your monthly amount you might need to pay a final payment.
One of the most common forms of finance, a personal loan is taken from a bank, loan, finance company or other third party. The terms vary depending on where you take the loan out but essentially you get a loan to pay for your car’s full amount. Interest rates also vary – so it’s worth looking around before trying this form of finance.
So, whether you opt for PCP, PCH, hire purchase or personal loan, you’ve now got a working knowledge of what each type entails. For more information, get in touch with us today and we’ll help you get your hands on your ideal car.