In this guide we discuss the different ways to finance your car. Personal contract hire, personal contract purchase, hire purchase and lease purchase are discussed in detail.
Personal contract hire (PCH), also known as personal leasing, is an effective way to get instant access to a new car without having to worry about a large cash outlay. This simple arrangement allows your car of choice to be leased at an affordable monthly cost, without you having to worry about the effect that depreciation has on your vehicle.
You pay a monthly rental to lease a car over a set period, typically between 12 and 60 months, with a flexible initial payment structure of either one, three, six, nine or 12 months paid after delivery. The vehicle is then returned at the end of the term. This arrangement offers all the benefits of owning a new vehicle but at a much lower monthly cost. Annual mileage requirements, servicing and maintenance options can be customised and included within your monthly payment. At the end of the term the car will be picked up so there’s no hassle with selling it privately or to a garage.
A hire purchase (HP) plan is a very popular and flexible way for people to acquire the vehicle they want immediately and to take ownership once the value has been fully repaid. Hire purchase is similar to a bank loan that is secured against the value of the car, as ownership of the vehicle is assumed once the repayments have been completed.
A deposit payment is agreed – typically 10% of the monthly payment – and repayments will be calculated based on this figure, the value of the vehicle, and the length of the repayment term. Once all the repayments have been completed, you will become the legal owner of the vehicle.
A personal contract purchase provides all the benefits associated with personal contract hire but gives you various options to choose from at the end of the contract. You can choose to pay a sum to purchase the vehicle known as a “balloon payment”, return the vehicle as you do with a contract hire agreement or terminate the agreement and take out a new PCP contract for a new vehicle.
A fixed monthly fee to lease the selected vehicle is paid over a set period of time, and you get a choice at the end of the agreement whether or not to meet a final payment to cover the car’s outstanding value. If this option is taken, the ownership of the vehicle will be transferred to the individual. However, the vehicle can also be returned at the end of the term.
Lease purchase can be a good option for people who would like to own a vehicle but do not necessarily have the money to buy one immediately. Once you’ve made a “balloon payment” (a large final payment) at the end of the contract, you take ownership of the vehicle. The monthly payments cover the difference between the value of the car at the start and end of the agreement.
When the lease purchase ends you have two options: either you can make the balloon payment and then take ownership of the vehicle, or you can choose to part exchange your vehicle – you make the balloon payment then lease a newer car.
