Finance at Ideal Trade Centre

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Deciding how to finance your car is an important decision many of us need to make. In 2014, 70% of all new cars buyers used finance from their dealer to pay for their purchase.

This guide will walk you through three of the most popular finance plans Hire Purchase (HP), and Personal Contract Purchase (PCP) to help you decide which is right for you.

Hire Purchase (HP)

If you choose to pay for your car with a Hire Purchase agreement, you will normally pay an initial deposit and will pay off the entire value of the car in monthly instalments. When all the payments are made, the Hire Purchase agreement ends and you own the car.

Pros

You'll be able to drive away a car that you may not have managed to buy outright.

Unlike a PCP contract, you won't need to estimate your mileage at the start of your Hire Purchase agreement, so you'll avoid excess mileage charges.

Once you've made your final monthly payment, you'll have full ownership of the car.

Things to bear in mind

Monthly payments may be higher than other finance options, such as PCP, as you're paying off the full value of the car.

You won't be able to sell the car without settling the finance.

Personal Contract Purchase (PCP)

Personal Contract Purchase (PCP) is similar to a Hire Purchase agreement as you will usually pay an initial deposit, followed by monthly instalments.

What's different with PCP, is that your monthly instalments are only paying off the depreciation of the car, rather than the entire value of the car.

How does PCP actually work?

At the start of your PCP contract, a Guaranteed Future Value (GFV) of the car is estimated. This is the car's expected value when your contract ends.

For you, this simply means that the money you're actually borrowing and repaying is the difference between what the car is worth now, and what it will be worth at the end of your contract (the depreciation). You'll pay this difference off in monthly instalments.

This means lower monthly payments for you, but you will need to pay a final payment at the end (the Guaranteed Future Value) if you want to buy the car.

Once your monthly payments are finished, you'll have three options:

1. Buy the car by paying the final balloon payment (the Guaranteed Future Value)

2. Hand the car back - your finance company has already predicted the Guaranteed Future Value of the car, so handing the car back will settle the deal.

3. Part exchange for a new car

Pros

Monthly payments on a car financed by PCP usually lower than if your car is financed by a Hire Purchase agreement.

If you decide not to buy the car, you can simply walk away when you've made all the monthly payments.

If your car is worth more than the Guaranteed Future Value then you can use that equity towards a deposit on a new car.

Things to bear in mind

If you want to buy the car you will need to pay your final balloon payment (the Guaranteed Future Value)

You will need to agree on an approximate mileage estimate at the beginning of your contract.

Can I settle my PCP deal early?

You can normally settle your deal early, however many finance companies will require you to pay off the difference between what your car is worth now, and what you still owe (negative equity). For example, if your car is currently worth 12,000 but your finance settlement figure is 14,000, then you will need to pay the 2,000 to clear the negative equity. Keep an eye out for early repayment charges!

Which finance option is best for me?

It depends what you're looking for. If you're someone who likes to change their car every three years, and you're looking for low monthly payments then a PCP or PCH deal might suit you.

If you want to own your car at the end of your monthly payments without paying a final lump sum, then a Hire Purchase deal offers this.

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Finance

At Ideal Trade Centre we can provide finance to help you with the purchase of a new or used car. A popular option is an unsecured personal loan or unsecured car loan - which can be tailored to suit you in terms of the amount and term and therefore the monthly repayment.

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