Here we cover the four main choices for funding a new car.
Car leasing or personal contract hire (PCH)
After a modest initial fee, you make monthly payments towards the cost of the new vehicle’s depreciation. When the contract ends, you hand the car back.
Brokers get the best deal from among multiple lenders, so you should pay less than alternative finance methods. Monthly payments are the same throughout, and usually road tax is included.
If you exceed the allocated mileage or damage the car, you’ll be charged.
Personal contract purchase (PCP)
As with car leasing, you pay a deposit followed by payments on a monthly basis for the length of the contract. At the end, you have three choices: return the car, buy it through a ‘balloon payment’ or use any surplus amount in the vehicle towards your next car.
Having the option to buy eventually is reflected in your fees each month, and you will pay interest on the whole value of the car, instead of just its depreciation.
PCP is usually offered from one lender, so rates may not be competitive.
You need to maintain the car for example taking it to companies including MOTs Gloucester at sites likes https://www.123carandcommercial.com and also keep within your estimated annual mileage to avoid a fee. Watch out for negative equity – if you want to end your contract early, you may need to shell out more than the vehicle is then worth.
For more information see https://www.moneyadviceservice.org.uk/en/articles/whats-the-best-way-to-finance-buying-a-car.
Hire purchase (HP)
Consider HP if you want to eventually own your car outright – monthly payments chip away at the total cost of the car. However, interest payments cost more than with car leasing or PCP. Losing money through depreciation is a factor. Also, if you want to finish the contract early, you must pay all the outstanding debt.
With a personal loan, you can buy your new vehicle outright. You can sell it at any point, and can make extra payments to shift the debt sooner.
However, as with HP, your monthly payments will probably be much higher than for PCP or car leasing if you desire a brand new car, since you are paying the total value of the vehicle with added interest.