Whether you’ve just passed your test or you’re simply looking to upgrade your wheels, the good news is that financing a car doesn’t have to cost a small fortune. There are plenty of different options out there, to suit all budgets. Of course, you can always take out a loan to pay for a car, but sometimes, leasing is much more cost-effective. However, it can be difficult to know which type of leasing is best suited to your needs, so here’s everything you need to know.
Personal Contract Hire
With personal contract hire, you pay a fixed monthly amount that is based on the anticipated depreciation value of the car – this is the difference between the price of purchase and the resale value at the end of the contract. PCH is best suited to people who want to drive a brand new car every few years, but are not bothered about owning the vehicle. With a PCH agreement, you simply hand back the car. Payments are always fixed and you can even include a maintenance package to cover the cost of servicing and minor repairs. You will have to agree to a fixed mileage though, and the fees can be costly if you exceed it. You should always make sure that you lease from a trusted company, such as All Car Leasing.
Pros: Hassle free, lower monthly costs
Cons: You will never own the car and you can’t make any modifications to it.
Who it suits best: Someone who wants to always drive a new car, and isn’t fussed about owning the vehicle.
Personal Contract Purchase
A PCP (Personal Contract Purchase) agreement gives you more choice at the end of the contract. Instead of simply handing the car back, you have the option to buy it for what is known as a balloon payment, which is the minimum future guaranteed value agreed at the start of the contract. With PCP agreements, you’ll always pay a deposit and then low monthly payments, which can make driving an expensive car more attainable. At the end of the contract, you have three choices – hand the car back, buy it with the balloon payment or part-exchange it. You could also extend the finance.
Pros: Flexibility, low costs.
Cons: Can be one of the more expensive methods of buying a car if you choose to pay the balloon payment at the end of the contract.
Who it suits best: People who are indecisive.
Hire Purchase – Those who can’t afford a dream car but want to own it outright
Hire purchase is an easy way to finance a car. You will pay a deposit, followed by monthly payments, and once you have met the full cost of the car, you take ownership. The finance company calculates the cost of the car based on the price of the car, the amount you pay as a deposit and the amount of instalments. The loan is always secured against the car, which can make it easier to get finance, but the monthly payments are higher than other methods of leasing. The car can’t be sold and might be re-possessed if you fall behind on the payments.
Pros: You can drive a car you can’t afford to buy outright, but be safe in the knowledge that you will own it eventually.
Cons: You can end up paying high interest rates, so it’s best to shop around before you commit.
Who it suits best: People who are sure about their dream car but can’t afford to buy it outright.
What happens at the end of the contract?
You will be contacted by the leasing company to arrange a convenient day for the car to be collected. The mileage will be checked, as will the condition of the car. This is so that the company can ensure you haven’t gone over your mileage limit, and you haven’t damaged the car beyond ‘fair wear and tear’ – if you have done either of these things, you may need to pay a small fee.
