Greenhous Guide to Car Finance
When you’re looking to purchase a car, whether new or used, you may be looking to apply for or take out a finance agreement to break the cost into affordable monthly payments. Car financing is a simple, convenient way to spread the cost of your car over a set period, so you can choose the car you want and the deposit and contract length that suit you.
TL;DR:
- Car finance helps buyers spread the cost of a new or used car into affordable monthly payments, with options shaped around deposit, contract length and budget.
- Private car finance options include Personal Contract Purchase (PCP), Hire Purchase (HP) and Personal Contract Hire (PCH). Each option offers different routes to driving or owning a vehicle.
- PCP offers flexibility at the end of the agreement, HP is suited to those who want to own the car outright, and PCH works well for drivers who prefer leasing without long-term ownership.
- Choosing the right finance agreement depends on key factors such as monthly payments, mileage allowance, deposit amount and contract term.
If you’re looking to finance a car intended for your own personal use, then you will be considering private financing options. These currently include Personal Contract Purchase (PCP), Hire Purchase (HP) and Personal Contract Hire (PCH). In this blog, we will explain what each finance option involves, helping you understand which suits you best so you can make an informed choice.
What is Personal Contract Purchase?
A Personal Contract Purchase, also known as a PCP, is one of the most popular modes of car finance, designed for individuals who are looking for a flexible option.
PCPs normally work by you paying a deposit amount, followed by an agreed amount of subsequent monthly payments. The monthly payments you make over the agreed term often don’t cover the full On The Road (OTR) value of the car. This means that at the end of the agreement, a residual amount of the original value is left as an Optional Final Payment.
What are your options when the agreement ends?
At the end of the PCP agreement, you can usually choose from one of three outcomes.
- Return the car to the dealership, potentially subject to excess mileage and condition charges.
- Pay the Optional Final Payment in full and keep the car. You would own the car at this stage.
- Use any available value in the car over and above the Optional Final Payment as a deposit towards your next car.
A Personal Contract Purchase is a great choice for those who like to move into a new car every few years, giving you the option to explore different models.
What is Hire Purchase?
Hire Purchase, or HP, allows you to own the car at the end of the finance agreement. Unlike a PCP, there is no Optional Final Payment. Over the course of a HP, you are paying towards owning the car outright. This means that monthly payments can often be higher than a PCP agreement on a like-for-like basis, but a Hire Purchase does not require mileage restrictions.
What are your options when the agreement ends?
At the end of the HP agreement and once all payments including any purchase fee have been made, the car is completely yours. To take out the agreement, you often pay an initial deposit before commencing the monthly payments for the agreed term. A Hire Purchase agreement is a great choice for those looking to own their vehicle at the end of the agreement.
What is Personal Contract Hire?
Also called PCH, Personal Contract Hire is a means of leasing a car. At the end of the agreement, you do not own the car. A PCH works with you paying an initial rental sum followed by several monthly rental payments throughout the length of the agreement. Personal Contract Hire agreements come with an agreed mileage limit.
What are your options when the agreement ends?
At the end of the PCH agreement, you return the car, and any excess mileage and damage charges may apply. The Personal Contract Hire agreement is a good option for those who know the mileage they will be doing across the agreement period and who want to drive a new car without having to worry about long-term ownership.
What is Business Car Finance?
Car finance can exist for private buyers too, enabling businesses and business owners to use finance agreements to manage vehicle costs over a set period of monthly rental payments. Business Contract Hire agreements enable business vehicle users to run their company vehicles with predictable monthly rentals. Returning the vehicle at the end of the agreed period subject to any excess mileage and damage charges.
What are your options when the agreement ends?
After you have completed the agreed number of monthly rental payments, the car is returned at the end of the agreement, and any additional charges are paid.
How Do I Choose Which Finance Option is Right For Me?
The best option isn’t always going to be the finance deal with the lowest monthly payments. It is important to consider factors like deposit amount, contract length, yearly mileage allowance and whether it matters to you to own the car at the end of the agreement. The best finance option for you is the one that fits your real-life budget and your lifestyle.
If you’re looking to purchase a new car, Greenhous are here to help you find the right model and the right financing option to match. Our new vehicle ranges that are available at our sites in Telford and Shrewsbury offer drivers a variety of vehicles to suit all driving styles, budgets and lifestyles. Explore our range of new cars today or speak to one of our friendly sales teams for help choosing the right option for you.
About the author
Emily Hunt