August 19, 2020 at 1:07 PM
If you are looking at buying a used or new car, you'll most likely have run into a payment option known as finance. If you aren't familiar with the idea of finance, it may be something you've never researched or looked into. Finance is a common option for those looking to break down the cost of an expensive purchase like a car. Finance will most likely consist of monthly payments that help to make the purchase of a car more viable for those who don't have the finances to buy a vehicle outright.
You also have to consider that in the current financial climate, you may not want to spend thousands of pounds in one go, as it could leave you in a predicament if those funds were required elsewhere. Car finance offers those who are looking for a new car but are also looking for a more affordable way of purchasing it.
How does car finance work?
Car finance may seem confusing but it's fairly simple once you understand how the different plans work and what each type of plan involves. Some are more suited for different people who can manage their finances differently. At Leeway, we want to make our customers confident i in their decision making which is why this article is aimed to inform those who are reading it. We want our customers to make informed decisions when buying their car, which is why we hope this guide will help those who are in the market.
Car finance plans will often consist of monthly re-payments made until the overall sum is paid off. You can see car finance as a loan to the company you're dealing with, and you're slowly paying off the amount that is owed, whilst still being able to use and drive the car as if you owned it.
Different types of finance plans are better suited for different people, which we have explained in a short description of each type below. Each plan will have its own details, so it's important to understand them if you're thinking of financing a car.
Personal Contract Purchase
A Personal Contract Purchase is a plan that's used to spread the cost of the overall amount, making it much more affordable for those looking for a car. PCP's are probably the most common type of finance plan as they often allow for lower deposit amounts, making it more affordable at the start of the plan. This does, however, mean that you won't be able to fully own the vehicle unless you have the paid the "Optional Final Payment". Optional final payment is the term used for the amount of money left at the end of your repayment plan. There are different terms used, ranging from "The Guaranteed Future Value, Guaranteed Minimum Future Value or Optional Final Payment".
If at the end of your plan, you decide that you don't want to purchase the vehicle, the dealership you're working with will take the car back. Deposit amounts for PCP plans are usually lower since the difference will be made up in the optional final payment. Once the final payment has been made, you will own the vehicle outright.
A hire purchase, also known as an installment plan is an arrangement between a dealership and a customer where the customer will a lump sum of the total amount of the vehicle, whilst repaying the remaining balance over a certain period of time. The remaining amount will have a certain percentage of interest applied, acting as a great way of purchasing a vehicle that would otherwise be too expensive for someone to buy at once.
Hire purchase plans do mean that you won't own the vehicle until the final payment is made, however, this often isn't an issue if you are planning on owning the vehicle for a while.
There are other forms of car financing which we've outlined in our other post (insert blog post here) which you can learn more about.
Leeway Motor Company
Leeway Motor Company are an approved Motonovo and First Response finance provider and also tailor finance packages to our client’s needs, we do this with a modern online professional proposal system which will give you an answer in less than 10 minutes. For more information on the finance packages that Leeway Motor Company offer please get in touch with us today on 01633 271 555.