Fancy something brand new on your drive? Nice idea but assuming company cars donít come your way and a rich aunt hasnít passed away lately then coming up with the necessary cash can be a problem Ė or maybe not?
There are a range of different finance deals that may be able to help you out as they are designed specifically for private car buyers. However, there are plenty of confusing options out there. So, weíre going to guide you through the pros and cons of three most popular financial plans.
Option 1: Hire Purchase
Hire purchase, otherwise known as HP, schemes have been around for a long time. Put simply an HP agreement is an undertaking to buy the car in instalments once you put down a deposit which is typically around 10% of the purchase price. HP is often arranged through the car dealer and the repayment period can range from 12 to 16 months. For example, a typical family car such as the Ford Focus costs around £21k. When youíve put down a deposit of around £2k you can expect to have 36 monthly payments somewhere in the region of £550. Now, if you do the maths then that means youíll be paying around £800 in interest over the three years. HP deals account for 22% of financed new cars purchased in the UK.
Unfortunately, there is a downside to HP. You donít actually own the car until the last payment is made. So, if you default on any payments then the dealer can theoretically grab those car keys off you and all you are left with are memories!
Option 2: Personal Contract Hire
The next scheme is Personal Contact Hire or PCH to those in the know. This scheme is for people who want completely hassle free motoring. Itís a bit like going down to your local Enterprise, Avis or Hertz and saying youíd like to rent a car but for a few years. Signing up to a PCH deal means youíll never own the car but youíll never have to worry about depreciation or repair costs either. Haggle particularly well and you might even get routine servicing thrown in as well!
Letís take the Fiat 500, shop around and you can get a £11k example for just £150 per month! This would be based on a typical 3-year deal. Ok, thatís £150 per month that youíll never see again but itís a lower monthly cost than an equivalent car on HP. At the end of your deal you can swap your nearly new car for a brand new one which is a big appeal for many people.
Before you sign up to a PCH deal and effectively worry-free motoring there are a few clauses that you have to be aware of. Because the car will always belong to the finance company they want their investment looked after. So, donít go rallying in it because theyíll hit you with the cost to put any damages right. Also, because mileage also affects then value of a car all PCH deals have an annual mileage cap. Go over the mileage threshold and youíll end up paying a premium charge per additional mile.
Option 3: Personal Contract Plan
Weíve saved the best option until last. Personal Contract Plan or PCP is a sort of half-way house between the first two schemes weíve mentioned. Like HP you put down a healthy deposit, typically 10%. Then like HP you spread your monthly payments over a flexible period usually between 18 and 48 months. However, unlike HP you wonít be paying back the full cost of the car over that time which means that at the end of the deal you still donít own the car outright. At this point you have a choice to make. You can either write one big final cheque, called a balloon payment, or you can part-exchange the car against a brand new one and start all over again. Alternatively, you can hand the keys over and walk away. PCP charges vary immensely because they are calculated on a predicted depreciation of a particular car. As an example, you can spec a £31k Citroen DS5 to cost around £650 per month over 3 years. At the end a balloon payment of around £10k will buy the vehicle outright. Provided the predicted depreciation has been accurate then there should be a few thousand pounds in the kitty that can go towards a new deal.
Like PCH there are mileage caps and you may pay a little bit more interest than an equivalent HP scheme but on a monthly basis itís in fact the cheapest way to get your hands on a brand new car. Itís perhaps no wonder that 72% of all new finance privately owned cars are done this way.
What if you fancy something a little fruitier? Well, once youíve coughed up a £20k deposit then you could get your hands on a Jaguar F-Type, worth £67k, for just £600 per month! Makes you think doesnít it?