TYPES OF FINANCE



HP - Hire Purchase

A method of buying goods through making installment payments over time. Under a hire purchase contract, the buyer is leasing the goods and does not obtain ownership until the full amount of the contract is paid.


Hire purchase combines elements of both a loan and a lease. You reach an agreement with the funder to pay an initial deposit, typically anything between 0% and 50%, and then pay off the balance in monthly instalments over an agreed period of time. At the end of this period, the car is yours.


Unlike a lease or a personal contract purchase agreement, the residual value of the vehicle is not taken into account. Instead your monthly payments on a hire purchase agreement are determined by the retail price of the vehicle, the size of the deposit and the length of the contract.


In effect, the contract is between you and the lender (funder) but is normally arranged by a dealer or broker. The lender effectively buys the vehicle and allows you to use it while you make payments. Only when all payments are complete is the car officially yours.




PCP - Personal Contract Purchase

Broadly, personal contract purchase is the same as a personal contract hire agreement - but with one key difference. At the end of the contract, there is an optional balloon payment that the individual can choose to pay in order to take ownership of the vehicle. This amount is determined at the outset and allows the driver to keep the vehicle if they are happy with it.


However, as with a personal contract hire deal, you could choose to return the car to the leasing company and walk away - subject to fair wear and tear and mileage.


Monthly payments are based on the deposit amount and the difference between the retail value of the car and the residual value - i.e. the estimated future value of the vehicle after depreciation is taken into account. Therefore, the more the vehicle holds its value, the better your personal contract purchase deal will be as that will reduce your monthly payments.


A mileage limit will apply to all personal contract purchase deals. This is because the leasing company will use the mileage limit to determine the vehicle's depreciation and therefore its residual value. So it's important to be honest with the leasing company about how much travelling you are likely to do - exceeding the mileage limit will lead to financial penalties at the end of the agreement.




Personal Contract Hire

Whenever you hear the term 'car leasing', chances are that it is referring to contract hire as it is the most common form of vehicle leasing agreement.


Basically contract hire means agreeing to take control of a car for a fixed period - it's yours to drive but it is never actually yours to own. Instead you reach an agreement with the leasing company to make fixed payments (usually monthly) for the duration of the contractual period. At the end of the contract you return the car to the contract hire company.


Your contract hire payments will be determined by a number of factors. Firstly, there is the retail price of the car - that is the price you would have to pay if you were to buy it outright. Then, there is the residual value of the car - that is its estimated worth at the end of the contract taking into account depreciation, mileage, and condition. You then pay the difference between the two figures in monthly instalments. So the higher the residual value of the car, the lower your payments will be.




Lease Purchase

Broadly speaking Lease Purchase is the same as PCP in that the leasing company has a retail value of the car and works out an estimated future value of the vehicle for the end of the contractual period based on its depreciation. This is known as the residual value. You can place a lump sum down-payment on the car upfront and then you make monthly payments on the difference between the retail value and the residual value. As a consequence, the more the vehicle 'holds its value', the better the deal - meaning luxury cars are often popular for lease purchase deals.


However, there is a fundamental difference between lease purchase and PCP. Whereas PCP gives you the option to buy the car outright at the end of the contractual period, with lease purchase you already have an agreement to buy the car. There is no return option.


Therefore at the end of the lease period, the customer must make a final balloon payment. This may be done through a cash payment or alternatively with additional finance or a part-exchange.


A typical lease purchase agreement will last from two-four years, though with most companies it is possible to settle the agreement at any point during this period.




Prestige cars

We also have specific types of finance for Prestige cars and these are available only on request. If you would like to know more please contact us via the live chat facility or give us a call to discuss.





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