Car Finance Explained

Basically there are three types of car finance available:

1. Hire Purchase
2. Personal Contract Purchase
3. Personal Loan

Below you can read about the three different types and decide for yourself which one best suits your needs. Still unsure, then give us a ring or pop in for a chat.

Hire Purchase

Hire Purchase is one of the most common ways to fund the purchase a new or used car, it is the legal term for a contract, in which persons usually agree to pay for goods in parts or a percentage at a time. It was developed in the United Kingdom and can now be found in many countries across the world, It is also sometimes called Rent to Own. A hire-purchase agreement allows the buyer to hire the goods for a monthly rent. When a sum equal to the original full price plus fixed interest has been paid in equal instalments, typically between 12 and 60 months the buyer may then exercise an option to buy the goods at a predetermined price (usually a nominal sum like £10.00). Hire Purchase agreements are secured against the goods, you will be required to settle the outstanding debt when selling the vehicle.

As a hirer you can usually enjoy the following rights and benefits:

1. Zero deposit – Most Hire Purchase providers offer agreements that do not require an initial deposit, allowing the hirer to be able to collect and use the vehicle without having to pay anything until the first scheduled instalment is due (normally 30 days).
2. Right of Withdrawal –A hirer has the right to withdraw from the Hire Purchase agreement within 15 days of executing the agreement. (The Hirer will have to make alternative arrangements to repay the balance in full).
3. Early Repayment – A hirer can repay early part or all of the balance payable which will be reduced with an interest rebate.
4. Early Termination – Once a Hirer has paid half of the total amount payable, should he wish to he has the benefit of being able to hand back the goods and walk away from the loan without any further payments due, and without affecting his credit rating whatsoever. (providing he taken reasonable care of the goods).

Benefit Summary

  • Zero Deposit Needed
  • Fixed Interest Rate for term of loan
  • No tie to mileage contract
  • No lock in and early settlement can be made at any stage of the agreement
  • Voluntary Termination Protection rights
  • Withdrawal Rights
Personal Contract Purchase

Personal Contract Purchase (PCP) is a popular choice for customers who change their vehicles regularly or wish to have lower payments during the course of the loan. A PCP plan will enable the customer to purchase a new vehicle with lower monthly repayments by deferring a large amount of the total cost of the vehicle to the end of the contract - this amount is known as the Guaranteed Future Value (GFV), often referred to as the optional final balloon payment. The GFV is set by the finance company and is based on the chosen vehicle and the annual mileage stipulated by the customer. The annual mileage can typically be set between 6k and 30k per annum and will affect the figure given for the GFV.

Why pay out to get back? With a standard fixed term loan you are paying out regular monthly payments to get some of it back at the end of the term ie. What the vehicle is worth when you have finished the loan, which can easily be affected by market forces.

Why pay it out in the first place? By only repaying the difference between the cash price and the Pre-set Guaranteed Future Value you are only financing the depreciation of the car.

At the end of the contract the hirer has four options:

1. Part exchange your vehicle for another car, with the benefit of the guaranteed future value you are protected from any loss or negative equity, If the trade in value is greater than the GFV the difference can be paid back cash to you or used as deposit against the new vehicle
2. Keep the vehicle by paying off or refinancing the outstanding balance
3. Return the vehicle to the finance company
4. Sell the vehicle privately and keep any profit over and above the GFV

Personal Loan

Personal Loan is one of the most popular ways to fund the purchase a new or used car, for the customer who wishes to own the vehicle from the outset with no restrictions or ties, it is the legal term for a contract, in which persons usually agree to pay for goods in parts or a percentage at a time It is also sometimes called a Per Loan or Unsecured Loan. A Personal Loan agreement allows the buyer to raise funds to purchase the goods, repaying the debt plus fixed interest with scheduled payments over an agreed term, typically between 12 and 60 months. Personal Loan agreements are NOT secured against the goods, you will NOT be required to settle the outstanding debt when selling the vehicle.

1. Zero deposit – Most Hire Purchase providers offer agreements that do not require an initial deposit, allowing the hirer to be able to collect and use the vehicle without having to pay anything until the first scheduled instalment is due (normally 30 days).
2. Right of Withdrawal –A hirer has the right to withdraw from the Hire Purchase agreement within 15 days of executing the agreement. (The Hirer will have to make alternative arrangements to repay the balance in full).
3. Early Repayment – A hirer can repay early part or all of the balance payable which will be reduced with an interest rebate.

Benefit Summary:

  • Zero Deposit Needed
  • Fixed Interest Rate for term of loan
  • No tie to mileage contract
  • No lock in and early settlement can be made at any stage of the agreement
  • Withdrawal Rights
  • Unsecured Loan
  • Vehicle free to sell at any time
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We will collect from the following areas of the UK: Arundel, Ashington, Bexhill, Billingshurst, Brighton, Bognor Regis, Bolney, Burgess Hill, Caterham, Chatham, Chichester, Coulsdon, Coneyhurst, Crawley, Crawley Down, Croydon, Dorking, Dinnages, Eastbourne, East Grinstead, East Sussex, East Worthing, Epsom, Five oakes, Gatwick, Gillingham, Goring, Guildford, Hassocks, Hastings, Havent, Haywards Heath, Henfield, Hove, Hurstpierpoint, Kent, Kirdford, Leatherhead, Lewes, Lindfield, Littlehampton, London, Maidstone, Orpington, Partridge Green, Portsmouth, Pulborough, Purley, Redhill, Reigate, Rochester, Rustington, Sevenoaks, Shoreham-by-Sea, Shoreham, Sidlow, Slough, Southampton, South London, Steyning, Storrington, Surrey, Sutton, Tonbridge, Tunbridge Wells, West Sussex, White City, West Worthing, Worthing, Yapton, & Yeoman.

Finance Example:
Cash Price £8,599, Deposit £0, Total Amount of Credit £8,599, Purchase Fee £10, Credit Facility Fee £188, Total Amount Payable £10,851.00, Initial Payment £179.20 Monthly Payments £179.20, Final Payment £0.00, Duration of Agreement 60 Months, Representative APR 9.9% APR, Interest Rate (fixed) 4.72%. Written quotations on request – subject to status

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