Finance is a popular method for purchasing a new car, allowing you to spread the cost of a new vehicle over a longer period. It’s a good option for people who don’t want to tie up a large lump sum in a vehicle, or would rather change their car on a more frequent basis than if they owned it outright.
Here at Auto Sportiva, we offer finance on all of our cars, so if you’ve checked out our current range of vehicles and see something you’d like, get in touch to see what kind of agreements we’re able to offer. But how does car finance work, and what do you need to know about it? Let’s find out in this article.
Main Types of Car Finance
Here at Auto Sportiva, we offer two types of finance on our vehicles - Personal Contract Purchase, or PCP, and Hire Purchase, which is commonly referred to as HP. Let’s take a look at them in further detail.
Personal Contact Purchase
Personal Contract Purchase - or PCP - is one of the most popular forms of car finance in the UK. Essentially, you’ll pay an initial deposit for a new or used vehicle and then follow this up with regular monthly payments over a fixed period, which is agreed with the lender, though they typically run for between 36 and 60 months.
Once you reach the end of that agreement, you have the option to pay a final - or ‘balloon’- payment, which will then mean you own the car outright. However, you don’t have to pay this - you can always hand the car back to the lender and either walk away entirely or start a new agreement on a new car.
What are the Benefits of PCP?
There are lots of benefits to PCP. For one, it offers lower monthly payments than you might expect and is great for drivers who don’t want to tie up a lump sum into one vehicle. Plus, you’ve got the freedom to swap cars frequently, so if you like to get behind the wheel of a new vehicle frequently, then it’s an ideal choice.
PCP also brings the ability to purchase a car at the end of the agreement, but there’s no requirement to do this - you’re free to hand the vehicle back should you want to instead.
What are the Downsides of PCP?
The main downside of PCP is that you won’t own the vehicle outright unless you make that large final payment. You’ll also need to make sure that you’re happy with the level of APR that is applied to your agreement, but this will all be explained when you first set up the finance package.
Most PCP agreements will also come with a mileage limit - applied each year - and you’ll need to keep to these or face penalties for each mile you go over. Higher mileage limits can also increase the amount you’ll spend each month, too.
If you fail to keep up with repayments, then the vehicle could be repossessed, too, which missing these monthly instalments could also result in a negative impact on your credit score. However, keep up with the payments, and it can improve your credit score, too.
Hire Purchase
Hire Purchase - or HP - has a similar feel to PCP but a different result. With HP, you’re purchasing a vehicle entirely via monthly payments over a set period. You’ll make a deposit and monthly payments as you would with PCP, but at the end of the agreement, you’ll own the vehicle outright. It’s worth knowing that you won’t own the vehicle until you make that final payment.
What are the Benefits of HP?
The main benefit of HP is that you’ll own the vehicle at the end of the agreement. You might notice that your monthly payments are higher with HP than they are with PCP, but this is because you’re paying off the total cost of the vehicle. You can also bring down those monthly amounts by paying a larger deposit, should you want to. Regular payments with Hire Purchase can also help you to improve your credit score.
What are the Downsides of HP?
You may notice that interest rates are higher with Hire Purchase agreements, which means that you could potentially pay a larger amount for the vehicle by the end of the loan period. Like PCP, missed payments can result in the vehicle being reclaimed, and they can also negatively impact your credit score.
HP also doesn’t give you the flexibility to change cars every few years as you can with PCP, though at the end of the agreement, you’re free to sell your vehicle should you want to.
Here at Auto Sportiva, we’re able to offer both PCP and HP finance agreements with our cars, bringing a variety of ways to pay for your next new car. If you’ve still got questions surrounding finance, then get in touch with a member of the team today, or check out our current range of vehicles to see finance examples on each model available.
