Car financing is the ability to create a credit agreement between you and the lender. This allows you to pay for your chosen car over a period of time, with interest payable on the loan balance. Their are 3 different methods when it comes to financing your car, let us explain each one.
Personal Contract Purchase (PCP) is a finance product that allows you the opportunity to buy a new or a used car.
It is similar to a Hire Purchase agreement as you will usually pay an initial deposit, followed by monthly instalments over a term typically between 18 to 48 months.
What makes PCP different to Hire Purchase (HP) is that your monthly instalments are paying off the depreciation of the car, and not its entire value, over the course of the term. Then, when you get to the end of your agreement, there is a final, balloon payment that must be made if you want to keep the car. The balloon payment is often referred to also as the Guaranteed Future Value (GFV).
When you have chosen your vehicle, you will then agree your annual mileage and decide on the agreement term with one of our Business Managers.
We will then determine the Guaranteed Minimum Future Value (GMFV) of the vehicle at the end of the agreement and work out a deposit and monthly amount that works for you.
At the end of your agreement you will then have three options:
Return – Simply return the car the back to us
Retain – Keep the car by paying the optional final payment
Renew – Trade it in for another car
For a quotation, help, or advice contact us and ask to speak to one of our Business Managers.
You can normally settle your agreement early by asking the finance company to provide you with a settlement figure. However, the finance company will require you to pay off the difference between what your car is worth, and what you still owe and there may be a difference which is known as negative equity. On the other hand, you may find that at the end of your term your car is worth more than the Guaranteed Future Value, which means you will have some positive equity to contribute towards your next car.
Hire Purchase is a way to finance buying a new or used car. You will normally pay an initial deposit and will pay off the entire value of the car in monthly instalments. When all the payments are made, the Hire Purchase agreement ends, and you own the car outright.
The short answer is yes, you can end your finance early. There are different provisions within each finance agreement that allows you to do just that. If you have got through two-thirds of the way through your finance agreement, the options to end the finance agreement early open up.
For a Hire Purchase agreement, there is an option of paying it off early through a settlement fee. A settlement fee covers the cost of any remaining unpaid instalments and interest payments remaining on the agreement. Once the settlement fee is paid, you take full ownership of the car early.
Under a Personal Contract Purchase agreement, you can also pay a settlement fee for bringing the agreement to an end early. After that, you can choose to hand the car back or you have a second option. Through a PCP agreement, you can take full ownership of the car by paying off the remaining Guaranteed Minimum Future Value also known as a balloon payment.
Personal Contract Hire (PCH) is a fixed cost rental agreement. You pay an agreed advance rental payment and decide how long you want the contract term to be. You then pay a fixed monthly payment for this period. You set your annual mileage and there’s also the choice of including a maintenance package to cover the cost of servicing etc whilst you are using the vehicle.
Personal Contract Hire differs to PCP (Personal Contract Purchase) as there is no option to buy the car at the end of the agreement. The vehicle belongs to the finance company so at the end of your contract you simply hand the vehicle back to them and there's nothing further to pay (subject to condition and mileage when excess charges may apply).
A lot of people are unsure as to what the payment structures of a PCH agreement means.
Here is a simple breakdown with an example:
Example: Non-refundable deposit + 36 payments. This would be a 3-year contract made up of 37 individual payments. The non-refundable deposit is the amount you wish to pay prior to the standard monthly rentals being paid. The deposit must be paid prior to delivery of the vehicle. The non-refundable deposit is followed by 36 standard monthly rentals.
In PCH you will pay a non-refundable deposit and this is not returned to you at the end of the agreement.
Our minimum term for a PCH agreement is 24 months (two years); the maximum is 60 months (five years).