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If you are lucky enough to be able to afford to just pay cash for a new car then that should almost always enable to get you the best possible deal. However we have occasionally seen finance deals which, because the manufacturer themselves contribute towards it, can actually work out cheaper than cash deals! (especially if you settle it early). That is quite unusual though but always worth shopping around! Here are the various financing methods with a brief explanation to help you decide which suits you best. (NOTE: NEVER enter into any finance agreement unless you are crystal clear over the terms and conditions and are confident of making the repayments - be very cautious!) Normal HP Finance This is where you just simply pay the cost of the car over a set period of time and the car belongs to you at the end. The total cost of the car can be quite high that way though so although owning the car at the end seems attractive it might not always be the best option for you. APR Typical APR's were introduced to try and make it easy for customers to compare like for like. The only problem is that it can be a bit confusing sometimes. For example if you take out a small loan over a short time the APR can then appear to be extremely high just because of the way it's calculated. The simplest way to compare is just look at actual payments you have to make monthly and in total to decide which offer is best. Watch out for documentation fees though as some companies don't make them very clear although they should at least be included in the APR calculations. PCP Finance Personal Contract Purchase is a reasonably flexible way to buy a new car. It works by utilising the final value of the car so that the actual monthly payments are lower than a normal HP loan. At the end of the deal you still have a large lump sum left to pay but the idea is that the car is still worth at least that amount so hopefully you can just trade it in and have a bit of equity left for a deposit on a new one. You can also choose to pay it off to own the car and you can finance that again but think carefully about that as a new car has the full 3 year warranty and no MOT bills to worry about so holding on to the car may not always be best. You can usually also hand the car back but will be penalised for excess mileage or damage. It's fairly straightforward to get a settlement figure at any time if you decide to change cars. Contract Hire Designed mainly for businesses as it has a VAT element which they can reclaim it is also fairly popular in the USA for personal customers and that market is growing in the UK helped by entrepreneurs such as 'Ling'. However we would suggest caution as it is a 'contract' which can be difficult to get out of without penalties should your circumstances change. As you hand the car back at the end you also have to ensure it's in pristine condition as we do hear of some horrendous charges being made. Also read the terms very carefully and consider carefully whether a PCP alternative might be more suitable. Leasing Some companies also class this as contract hire, so you need to be a bit cautious. It's basically the same although proper leasing is a bit more flexible than contract hire. Generally you lease the car for a set time and then you must sell the car on at the end to a third party. The finance company get a small percentage of that sale. You can also get a lease with balloon which is similar to PCP but not as well guaranteed so unfortunately we do sometimes see companies advertising extremely low monthly lease deals but neglect to mention upfront that there is a very large balloon final payment which might not be covered by the car value at that time, leaving you in negative equity. So extra caution is advised when considering a lease deal - be very clear on all the terms and conditions! |
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