Car Finance Guide

Matthew J James asked:


Traditionally, getting the right personal car finance deal used to mean deciding which bank to take out a loan with. Nowadays, there are now more ways to finance your next car, with the addition of Hire Purchase, Personal Contract Hire, Personal Contract Leasing and Lease Purchasing. This article aims to provide more information so that you find the right personal car finance deal.

Hire Purchase

Hire Purchase is the often used alternative to a bank loan when it comes to financing a new car. The finance company will pay the dealer for the car, and then you pay back the finance company. You can pay for the car over an agreed period of up to 72 months, and there is no VAT charged on top of the monthly repayments. Once the last repayment has been made, the vehicle is yours.

Personal Contract Hire

Personal Contract Hire is a way of leasing a vehicle over a set time period. The annual mileage is set by the lease company and is usually 10,000 miles per year, although this can be changed, but will increase the monthly payment. It is also possible to incorporate maintenance into the monthly payment. Personal Contract Hire is very similar to the Contract Hire leasing schemes that businesses use, but for individuals. The main advantage of a lease is that the lease company takes on some of the expense of car ownership such as depreciation. Most vehicles will depreciate by 40% in the first year, and will have lost 60% of their value after 3 years. Prestige brands will hold their value better than mainstream brands, but are not always affordable. Perhaps you will be able to afford a bigger or better car using Personal Contract Hire than with a bank loan, or Hire Purchase.

There is usually a small deposit to pay when taking out the Personal Contract Hire plan agreement, and a lower monthly repayment compared to Hire Purchase. Also, the family budget can be accurate and forecast for years in advance, as breakdown insurance and maintenance costs such as servicing, exhausts, tyres and batteries can be included in the monthly payments. There should be no costly surprises if the car breaks down and needs a lot of work doing to it.

Personal Contract Hire is also a popular choice for company car drivers who have been given a car or mileage allowance instead of a company car.

Personal Contract Purchase

Personal Contract Purchase is similar to Personal Contract Hire but with additional options at the end. Lower payments are achieved as there is a Guaranteed Future Value (GFV), which states what the vehicle will be worth at the end of the lease period.

Using Personal Contract Purchase helps to save money and provides peace of mind. However, depreciation will need to be considered, as this helps to determine the GFV. A car that depreciates more will be worth less, and so have a smaller GFV at the end of the lease period. At the end of the lease period, there are three options: give the vehicle back to the lease company, purchase the vehicle at the GFV, or part exchange the vehicle. Part exchanging the vehicle is the most popular choice as it allows any equity (what the vehicle is worth over and above the GFV) to be used against another car.

Lease Purchasing

Lease Purchasing is similar to Hire Purchase, but there is a final payment (balloon payment) at the end of the lease period, which explains the low monthly payments. Finance can be used to pay the balloon payment. This method can help you afford a car that was previously out of your budget, but the final payment may still be very high, and possibly more than the value of the car.

Whether it’s a Ford van or a Mercedes C Class you want, why not see which personal car finance method is best for you.



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Jeffry Evans asked:


Guaranteed car finance companies have helped thousands of customers who have different past credit problems to finance the purchase of a new or used car. Some people need guaranteed car finance simply because they have no credit history. So, thank goodness for guaranteed car finance arrangements whereby you can find a car you like and drive it out of the showroom within minutes, right? Maybe not. You might want to look a little closer before signing those papers…

Rates

As usual, the rate you are offered will depend upon your credit history. If your credit history is bleak at best, then you can bet your quote will include an interest rate that is sky high upon “approval”, and be careful with that as well, because the rate advertised is not always the rate you will get. I’ve heard of some guaranteed car finance companies coming back with an interest rate as high as 15% and higher! That’s like credit card interest on a larger principal amount. Car finance rates are determined by the percentage or cost added onto the loan by the lender and the dealers get paid a commission on higher purchase deals and will try to charge a rate that is more beneficial to them, and not you.

Payments

Once you have the purchase price of your automobile and are working with the interest rates, be sure to figure the total monthly payment that you will be paying, and determine if it will work with your monthly budget. Remember that just because you may have a good purchase price and acceptable interest rate, if the monthly payments are too much for you to handle comfortably for a number of years, it may be best to pass. Also, if the payments do seem to be too high, don’t let the dealer talk you in to stretching out the financing for years and years. Remember that a car loses 60-70% of it value in the first two years. So if you sign into a loan for 7-8 years, you may still be paying for the car when it is a heap!

I understand that your credit record may not be perfect at all stages in your life, many things can happen to leave you with a bad credit history. If you do not have the savings and cannot borrow from friends or relatives, you will have to face the possibility of applying for a car finance loan and are likely to find it more difficult to obtain approved car finance with a bad credit history: difficult, but not impossible.

Bottom line, anything that claims to be “Guaranteed Finance” or “Bad Credit No Problem” is likely to be out to devour your bank account. My suggestion is to save a little money, and buy a car with cash. It may not be the sports car you’ve always dreamed of, but it will get you from point A to point B until you have a chance to repair your credit, and save up some money to buy that sports car. If you cannot wait and simply must get a guaranteed car finance loan, be careful, shop several different places, and go with the best proposal.



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