Ways To Pay
There are various ways you can pay for your next family car, so it's important you understand the different types of finance available to find the best one for your family.
There are 4 main ways to pay:
Personal leasing, Personal contract purchase, and Hire purchase and finally, with Cash. Each has its own pros and cons, so it's important to understand them before making a decision.
The best choice for your family will depend on a few things: the interest rate offered, how fast the car loses value (depreciates), your budget, how long you want to be paying for the car, and whether you want the option to upgrade or own the car outright in the future.
Let's look at the options you have in a little more detail:
Leasing (also known as Personal Contract Hire or PCH)
Car leasing is like a long term rental agreement for a car. You start by paying a deposit, then you make monthly payments for a pre planned length of time. During this time, you get to use the car. But if there's any damage beyond what's considered normal wear and tear, youll have to pay for it.
Most car leasing contracts last from two to four years, and the deposit is usually three to six times the monthly payment amount. Generally, the longer you lease the car, the lower your monthly payments will be.
The big difference between Personal Contract Hire (PCH) and Personal Contract Purchase (PCP) is that with PCH, you must give the car back at the end of the contract you cant buy it like you can with PCP.
Pros and Cons of Paying with Leasing/Personal Contract Hire
- No worries about depreciation: With leasing, you dont have to stress about the car losing value over time.
- Convenient perks: Delivery, breakdown cover, road tax, and a warranty are often included in leasing deals, making life easier for you.
- Cheaper monthly payments: Monthly payments for a similar car are usually lower with leasing compared to PCP.
- Change cars easily: You can switch to a new car fairly frequently if you want to.
- No scary balloon payment looming at the end of the contract.
- Higher deposit requirements: Youll typically need to put down a larger deposit compared to PCP.
- No option to buy: Unlike PCP, you cant buy the car at the end of the contract, even if you really like it.
- Mileage limits: PCH deals come with mileage limits, and youll face financial penalties if you go over them.
- Extra charges for damage: Youll have to pay for any damage beyond normal wear and tear when the contract ends.
- Permission for overseas travel: You might need to get permission from the finance company and pay extra fees to take the car abroad.
Personal contract purchase (PCP)
Personal Contract Purchase (PCP) is another way to pay for a car kind of like getting a car loan.
You start by putting down a deposit, and then you split the remaining cost of the car into monthly payments with some extra money added on for interest. But there's a twist with PCP: at the end of the contract, you'll have a bigger payment to make, called a balloon payment. This payment is based on what the finance company thinks the car will be worth in the future. After you make this final payment, you have a few choices.
- You can make the balloon payment and own the car outright.
- You can give the car back.
- Or, if the car is worth more than the balloon payment (called the guaranteed minimum future value or GFV), you can use that extra value to trade it in for an upgrade.
It's important to note your monthly payments depend on the car's price, the interest rate, and how much the car is expected to lose value over the contract.
The key thing to know about PCP is depreciation. Cars lose value as soon as you start driving them, but some lose more than others.
When you sign up for PCP, the finance company predicts the minimum value the car will have at the end of the contract. This is called the 'guaranteed minimum future value' or GMFV.
Pros and Cons of Paying with Personal Contract Purchase
- Flexibility: PCP gives you three choices at the end of the contract, so you can decide what works best for you
- Deposit contribution: Some manufacturers might chip in toward the cost of your finance deal, which can help lower your monthly payments
- Change your car often: With PCP, you can switch to a new car fairly regularly if you want to
- Stick to the rules: You must follow the terms of the contract, like sticking to a maximum annual mileage. If you go over, youll have to pay extra fees
- You wont own the car outright: Unless you make the extra balloon payment at the end, the car wont be yours to keep
- Extra charges for damage: If the car gets damaged or has a lot of wear and tear, youll have to pay more when the contract ends
- High balloon payments: The final balloon payment can be quite large, so be prepared for that
Hire purchase (HP)
Hire Purchase (HP) is a more traditional way to finance a car. Instead of just paying for the car's decrease in value like with Personal Contract Hire or Personal Contract Purchase, HP works by putting down a deposit and then making monthly payments (plus interest) until you've paid off the full value of the car. These contracts usually last from one to five years.
But here's the catch: you won't own the car until you make a final payment called a 'transfer fee' or 'option fee' at the end of the deal. Until you make this payment, you can't sell the car without permission from the lender. However, this final fee is usually pretty low
Pros and Cons of Paying with Hire Purchase
- Flexible payment terms: You can choose how long you want to pay for the car. Longer terms mean lower monthly payments, but you'll pay more in interest overall.
- Ownership: Once you've made all the payments and paid the final fee, the car is yours to keep or sell.
- Easier approval: If you have a bad credit history, you might find it easier to get approved for hire purchase compared to a personal loan.
- No mileage limits: You can drive as much as you want without worrying about mileage limits.
- Ownership delay: The finance company owns the car until you make the final payment and transfer fee.
- Restrictions: You can't sell or modify the car without permission from the finance company during the hire purchase term.
- Higher payments: Monthly payments can be more expensive because you're paying off the entire car, not just its decrease in value.
- Risk of repossession: If you fall behind on payments, the finance company can take back the car without needing a court order once you've paid off a third of the total amount.
Cash
Thinking about buying a car with cash or paying all at once instead of in instalments? Let's make it as simple as possible to understand what this means:
Using actual money:Actual real life cash notes/coins
Paying the whole price at once:This could be through transferring money from your bank, writing a check, or using a debit card without owing any more money later.
What about not using finance and paying everything upfront?
Definitely. If your bank allows you to send enough money in one go, you can pay for the whole car at once. It's simple you own the car completely, with no debts. Just check that your bank will let you spend that amount.
Pros and Cons of Paying with Cash
- You own the car completely right away.
- No extra charges or interest (unless there's a fee for transferring money).
- It's quick and easy no need to get approval or sign lots of papers.
- You might have more options since not all sellers offer payment plans.
- Not everyone has enough money to pay for a car all at once.
- It's a big amount of money to put into something that loses value over time.
- Payment plans can make buying a car easier on your budget.
- You could miss out on earning money from that cash if you invested it elsewhere.
So, when you're ready to choose your next car, think about what works best for your family and your budget. Whether it s cash or a payment plan, it should fit your needs. And when you decide to buy, Family Car Deals is here to help you get a great deal.
Let's make buying a car as friendly and simple as chatting over coffee!
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