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01902 928343
nathaniel@leaselife.co.uk

Let’s Talk About Motor Finance!

Let’s Talk About Motor Finance!

We aim to keep things as simple as possible for our clients, and with our expert guidance, our clients are making well informed decisions when it comes to vehicle finance.

With so many new vehicle adverts out there with very little information being displayed, it’s very easy to buy a vehicle nowadays and be none the wiser as to which type of finance agreement you’ve entered.

As an FCA authorised broker business we have a responsibility to ensure our clients are well informed, and by the end of this guide, we hope you too can confidently decide for yourself which type of finance is best suited to you and your goals.

**PLEASE NOTE THE FOLLOWING GUIDANCE APPLIES TO PERSONAL CUSTOMERS ONLY**

What is Vehicle Finance?

There are various opinions out there surrounding vehicle finance and whether it is a good idea or not, however we find the most common reasons people decide to go down this route are for the following:

  • To spread the cost of owning or using a vehicle over a period of time
  • Purchasing a car outright is not possible due to insufficient funds
  • Funds can be invested elsewhere to generate a much higher return

Who’s Involved?

Most common vehicle finance agreements have three parties involved in order to set up the finance.

  1. Customer (YOU)
  2. Supplier (DEALER)
  3. Lender (FINANCE COMPANY)

The supplier sells the vehicle to the lender at the point of sale; the lender pays the supplier and takes ownership of the vehicle. The lender then takes monthly payments from the customer over the term of the agreement.

Types of Vehicle Finance Products

There are a range of different types of finance products for personal customers, let’s explore in detail the most common types offered and their key features.

Hire Purchase (HP)

Hire Purchase (also known as HP) is a purchase agreement and is a finance option where ownership of the vehicle is gained at the end of the agreement. This option provides fixed cost motoring for both new & used vehicles.

You pay a deposit followed by fixed monthly payments over the duration and then at the end of the agreement once all payments have been made under the agreement, you gain ownership of the vehicle.

Key Features

  • New and used vehicles are available on this finance scheme
  • Low deposit is available
  • You can part exchange your old vehicle as a deposit
  • Fixed APR interest rates (exact rate confirmed following a finance application)
  • Fixed monthly payments, good for budgeting
  • Ownership is gained at the end of the agreement

Things to Consider

  • Contract term is commonly between 2 to 5 years
  • You can voluntarily terminate your agreement before your final payment is due, however you will be required to hand the vehicle back to the finance company and have paid at least half of the total amount owed (details are set out in your agreement)
  • There is no mileage allowance required as you are expected to gain ownership of the vehicle at the end of the agreement

Personal Contract Purchase (PCP)

Personal Contract Purchase (also known as PCP) is a purchase agreement and is a flexible finance option. This option provides fixed cost motoring for both new & used vehicles.

You pay a deposit followed by fixed monthly payments over the duration and then at the end of the agreement you have three options:

  1. Purchase the vehicle at the pre-agreed value (commonly known as GMFV/Balloon Payment)
  2. Hand the vehicle back
  3. Part exchange the car and use any equity (if applicable) towards a deposit for your next car

Key Features

  • New and used vehicles are available on this finance scheme
  • Low deposit is available
  • You can part exchange your old vehicle as a deposit
  • Fixed APR interest rates (exact rate confirmed following a finance application)
  • Fixed monthly payments, good for budgeting
  • Flexible terms to meet your requirements, with variable contract duration and mileage terms
  • No disposal risk as you have the option to hand the vehicle back at the end of the term
  • Ownership at the end is an option if required

Things to consider

  • Regardless of what you are told, there is no guarantee of what your vehicle will be worth at the end of the agreement, only the amount outstanding to the finance company is guaranteed (GMFV/Balloon)
  • You will be required to set an annual mileage allowance at the quotation stage
  • Contract term is commonly between 2 to 4 years
  • You can voluntarily terminate your agreement before your final payment is due, however you will be required to hand the vehicle back to the finance company and have paid at least half of the total amount owed (details are set out in your agreement)
  • The vehicle should be returned to the finance company within the agreed contract mileage or you will face excess mileage charges
  • The vehicle should be returned to the finance company in a condition that meets the “fair wear and tear” guidelines

Why choose Personal Contract Purchase

  • This finance option is suited for all personal drivers who want to drive new/used vehicles with the flexible option to purchase the vehicle

Personal Contract Hire (PCH)

Personal Contract Hire (also known as PCH, Personal Leasing) is a long term hire agreement; this option provides fixed cost motoring for new vehicles only.

You will make a series of fixed monthly rentals for the duration of your agreement (24 to 48 months), including an initial rental paid in the 1st month. You also have the option to include vehicle servicing and repairs by paying an additional monthly maintenance rental, to further help you budget for your motoring costs.

Key Features

You pay for the use of the vehicle throughout the duration of the contract and then return the vehicle to the finance provider at the end of the agreement.

  • New vehicles are available on this finance scheme
  • Low initial rental is available
  • Rentals are quoted plus vat, there is no APR rate
  • Road tax included in monthly rental
  • Fixed monthly payments, good for budgeting
  • Flexible terms to meet your requirements, with variable contract duration and mileage terms
  • All vehicles are delivered to any UK address
  • Full manufacturers warranty included with all vehicles
  • No disposal risk as the vehicle is returned to the finance company at the end of the term
  • There is no option for ownership

Things to consider

  • Contract term is commonly between 2 to 4 years
  • Expect to be charged between 50-100% of the outstanding rentals, in the event you want to terminate the agreement early (dependent on lender)
  • You will be required to set an annual mileage allowance at the quotation stage
  • You will be required to service the vehicle in line with manufacturer guidelines
  • If you exceed your agreed mileage at the end of the contract, an excess mileage charge will be payable, calculated on a “pence per mile” basis
  • The vehicle should be returned to the finance company in a condition that meets the “fair wear and tear” guidelines
  • Vehicle must be insured with fully comprehensive insurance

Why choose Personal Contract Hire

  • This finance option is suited for all personal drivers who enjoy the benefits of driving  a new car every couple of years without the issue of ownership

Conclusion

Ultimately the choice of vehicle is down to your own goals and preferences, however armed with the right information you can now ensure you are choosing a finance product that suits your goals and preferences also.

Nathaniel Lawson – Leaselife Vehicle Leasing

nathaniel@leaselife.co.uk || 01902 928343

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