Buying the motor car outright
If you possess financial resources to spare, purchasing a automobile overall can be a cost effective alternate as you will not be making any interest payments – the price you negotiate is the price you pay. You also have the convenience of owning the car outright from the beginning but it will be a massive capital outlay with no long term protection.
Hire purchase HP
This has long been the standard way of funding a automobile and is often set up through a dealer. You can, of course approach car finance companies one-on-one and it will certainly be beneficial to get a wide range of prices. In principle you are generally hiring a car which comes with a “right to buy” – but try to remember you do not own the vehicle until every payment is made. HP contracts can be quite versatile and the premiumsrather competitively priced but not as good as a personal loan from the bank and the monthly payments will be bigger than a PCP. Clearly if you do not keep up with the installment payments then the car can be repossessed.
Personal (car loan)
Generally speaking you already have the funding for a motor vehicle loaned to you by a bank or building society before you venture on to the car dealer. You buy the motor vehicle outright and the repayments are made to the loan company. Of course it pays to research rates. One of the positive aspects is that the loan is not secured against the vehicle so it‟s yours to sell when you wish and generally personal loan rates are quite favourable. If, however, your credit rating is not so good the monthly payments may be quite high.
Car leasing
With a car lease you will usually pay a month to month sum over a two to four year term and at the end of the arrangement you simply just give the vehicle back. Think of it as a (very) expanded car hire as the car never belongs to you although some leasing some leasing companies will give you the option to buy the car at the end of the term. This alternative generally only requires a small down payment and at the end of the lease you just walk away (usually into another new car). Some people today however, may not like the idea of never acquiringownership and there will be a mileage limit on the lease with fees levied for exceeding beyond it.
Personal Contract Plans PCP
A Personal Contract Plan (or PCP), is a equivalent process to hire purchase but you don‟t buy the car at the end
of the term. Instead the manufacturer/dealer works out how much the car will be worth at the end of the term and you pay off the difference, plus interest, known as the “balloon payment” Minimum Guaranteed Future Value (MGFV). At the end of the term you can decide to buy the car outright, disappear or use the difference as a down payment on your next vehicle. PCP‟s offer lower monthly payments with routine maintenance charges often incorporated and they also have some convenience in that if the car is worth more than the forecasted value you can sell it on; if it‟s worth less you can hand it back to the auto finance company. Again there will be a mileage limit that needs to be followed and although the monthly payments will be lower a PCP can work out more pricey than HP over the full life span of the loan.
Some other important things to remember:
Always demand for the “total amount payable” to be made clear. This is the total cost to acquire the car after all interest payments and supplemental fees are included. Also be aware of additional charges – such as
management and paperwork fees that can be added to the total bundle and raise the car finance company‟s profits.
Most importantly be cautious of taking on more credit than you can actually afford to pay for. It is never a good idea to extend your mortgage to finance a automobile as you will end up paying far more in the long term. Always think about what you can comfortably manage on your funds. Most car dealers and finance companies will provide an web-based car loan calculator so you can work out the cost and it‟s always best to build in a comfortable “affordability cushion” in case your situation change.
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