Motor Finance Made Easy

| 01 October 2022

At a time when costs are soaring at an astronomical rate, the anxiety and stress of searching for the right finance package for major purchases can be equally astronomical. Financefinity’s Operations’ Manager, Lewis Parker, answers some of the questions we need to consider when shopping around for motor finance.

What are my options?

The main decision is about what type of finance package is best for you – PCP or HP.

What is PCP?

PCP is a popular choice and really is quite simple. It can involve 3 payments:

  • A deposit
  • Monthly payments over a set term, (typically 3 or 4 years)
  • A balloon payment which is optional

You can opt to pay little or no deposit as an upfront payment for the vehicle. Your monthly payments then depend on the purchase price of the car minus the deposit and balloon payment. The balloon payment, (also known as the GMFV – Guaranteed Minimum Future Value), is what the lender believes the car will be worth at the end of the contract. Subtract the GMFV and the deposit from the total value of the car and you get the loan value. At the end of the contract, you pay the balloon payment and keep the car, or return the car and start a new contract on a new car or simply walk away.

What is HP?

As with PCP, Hire Purchase, (HP), involves an optional payment of a deposit and then monthly payments to cover the value of the car. At the end of the contract, you can own the car by paying the option to purchase fee– usually starting from £10.

The significant difference is in the final payment. PCP with its balloon payment to buy the car outright and HP with only the ‘option to purchase’ fee at the end of the contract. You need to consider that HP monthly payments are likely to be higher because of this.

Can I get PCP or HP finance without a deposit?

Yes, there are no deposit terms available from finance lenders, but it will mean higher monthly payments.

Do I own the car for the duration of the contract?

With both finance options, the finance provider owns the vehicle for the duration of the term until you have paid the balloon payment/ paid the fee at the end of the contract. In real terms, you are only hiring it.

What about insurance?

It is very rare that insurance is included – it is up to you to take out fully comprehensive cover for the duration of the contract even though you do not ‘own’ it.

It is strongly advised that you also arrange GAP insurance.

Are there any considerations around the maintenance of my financed car?

Indeed, there are maintenance considerations, but as long as you regularly have your car serviced by a garage approved by the dealer/manufacturer, then you are covered.

With both insurance and maintenance, it is worth a discussion with your lender beforehand to confirm any obligations. 

Which is the best option?

This all boils down to your budget and your intentions at the end of the contract. All good finance lenders with full FCA authorisation, like Financefinity, will advise. Decide on your budget and talk to potential providers about your particular needs. The team at Financefinity listen carefully to customers’ needs to help them make the right choices to suit budget and lifestyle.

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