If you’re looking at buying a used car, then going down the finance route could help to make things easier.
So, what options are there? Car finance is a great way for many car buyers to own a vehicle as it breaks down the purchase price into manageable fixed monthly payments with a much smaller deposit contribution, making it easier to get into a new car.
Did you know there is more than one type of car finance agreement? We’ve explained the different types of car finance agreements that are on offer here at V12 Sports and Classics to make it easier for you to own a newer second-hand car, so read on to find out more.
Personal Contract Plan (PCP)
A PCP is a great car finance option for those who like to regularly upgrade their car. (Suzuki)
The most popular type of car finance agreement is the ‘Personal Contract Plan’, or PCP.
PCP has many advantages for second-hand car buyers. It sees buyers putting down a deposit and then paying a fixed monthly payment over an agreed loan term, typically between two and four years.
The payments cover the car’s depreciation over the loan period, rather than the full purchase price of the car.
Once the PCP contract period is up, buyers have three options with the vehicle. The first option is make the ‘balloon payment’. This is a final lump sum that you pay to own the vehicle outright.
The second is to trade in the vehicle and use this value against a new finance agreement, while using any equity built up to contribute to the deposit on the next finance package.
Thirdly, you can simply hand the vehicle back with no further payments as long as the vehicle meets certain criteria within the PCP deal.
These criteria typically include mileage restrictions, with buyers paying extra if they exceed their agreed mileage terms. Standard PCP mileage restrictions are usually around 6,000 to 10,000 miles a year.
Buyers will also have to pay if the vehicle is returned with any damage, such as scratched panels or kerbed alloy wheels.
If the vehicle has sustained damage, we’d recommend that any large dents or deep scratches be repaired by a professional before you return the vehicle.
A PCP finance contract is great for those who prefer lower monthly payments, shorter contract terms and can benefit from upgrading their car regularly.
Hire Purchase (HP)
An HP deal is a better option if you plan to keep your car long-term. (Mazda)
Hire Purchase is the second car finance agreement and is much simpler than a PCP deal.
With HP, you pay an initial deposit followed by monthly instalments over a fixed period which is pre-agreed with the lender.
The difference between HP and PCP monthly payments is that you’re paying off the car’s total purchase price, rather than its depreciation over the loan period.
Once the final HP payment has been paid off, the car automatically becomes yours, with no option to buy the car outright, hand it back or trade it in. However, since you legally own the vehicle, you are free to sell it should you wish to.
An HP finance agreement is a better choice for those who intend to keep their car long-term, while not having to worry about paying up a final balloon payment. However, since you’re paying off the value of the vehicle, an HP agreement usually brings higher monthly costs than your typical PCP plan.
Plus, once the car is yours, it’s your legal property, meaning you don’t have to worry about mileage restrictions, damage and residual values.
Thinking about buying a second-hand vehicle? We’ve got loads of examples to look at here at V12 Sports and Classics, so check them out today.