Last generations, a buyer of a private car would have bought a car worth £ 8,000 with approximately £ 8,000 in cash. Today, the same £ 8,000 is used more as bail for a car that could be worth tens of thousands, followed by up to five years of monthly payments.
With several manufacturers and distributors claiming that between 40% and 87% of car purchases today are made with some type of financing, it is not surprising that there are many people who jump into the car market to satisfy the wishes of buyers. To benefit from the latest flashy car available within your monthly cash flow limits.
The attraction of financing a car is very simple; You can buy a car that costs much more than you can afford up front, but you can (hopefully) last in small pieces of cash monthly for a period of time. The problem with financing auto loans is that many buyers do not realize that they usually pay much more than the face value of the car, and do not read the fine print of auto financing contracts to understand the implications of what They are subscribing.
To clarify, this author is neither pro nor antifinancial when buying a car. However, what you need to consider is the total impact of financing a car, not only when you buy the car, but throughout the life of the financing, and even afterwards. The industry is highly regulated in the UK, but a supervisor can not force him to read documents carefully or force him to make prudent decisions about car financing.
Financing by the concessionaire
For many people, it is very convenient to finance the car through the dealer where you buy the car. There are also often offers and national programs that can make auto financing through the dealership an attractive option.
This blog will focus on the two main types of car financing offered by car dealerships for private car buyers: purchase by rental (HP) and purchase by personal contract (PCP), with a brief mention of a third party, the purchase for rent (LP). The leasing contracts will soon be discussed in another blog.
What is a purchase for rent?
An HP is like a mortgage in your house; You pay a prepayment and then pay the rest for an agreed period (usually between 18 and 60 months). Once you have made your final payment, the car is officially yours. This is the way that car financing has been working for many years, but now it starts to get lost against the PCP option below.
A purchase for rent offers several advantages. It is easy to understand (initial payment plus a set of fixed monthly payments), and the buyer can choose the initial payment and the term (number of payments) according to their needs. You can choose a term of up to five years (60 months), which is longer than most other financing options. In general, you can rescind the contract at any time if your circumstances change without massive penalties (although the amount owed may be greater than the value of your car within the term of the contract). Generally, you pay less for HP than for PCP if you want to keep the car after it was paid.
The main disadvantage of an HP compared to a PCP is the higher monthly payments, which means that the value of the car you can afford is lower.
An HP is generally better for buyers than; They plan to keep their cars for a long time (ie, longer than the financial term), have a large down payment or want a simple car financing plan without having to resort to the end of the deal.