September 1st is the day that the new car registrations were released. But buying a shiny new car doesn’t come cheap. According to the Society of Motor Manufacturers and Traders, (SMMT) new car registrations fell by 13.2 % in July of this year. Yet the VAT rise in January means that if you are thinking of swapping your banger for something better, then now is the time to buy.
So, with new and used car dealers keen to attract customers, we’re taking a look at car finance, and the different options available for financing a new set of wheels.
Hire Purchase
A hire purchase agreement is normally arranged through a dealership. The buyer puts down a deposit and pays a fixed monthly installment for a period of usually three to five years.
However, you don’t legally own the car until you’ve paid back all the money you owe. This means that you can’t modify or sell it without the lender’s permission. So adding alloy wheels or go faster stripes to your new motor, is a big no no!
Your contract is with a finance company (not the retailer) who can take the car if you don’t keep up the payments. However, this means that it’s also possible to get a reasonable interest rate because the lender knows they can always repossess the car if you fail to pay. It’s also worth knowing that the car salesman is on a commission for the loan they sell you, so always haggle to get the finance repayments down. Check price comparison websites before you go, so you have some idea of the rates available. You can use this information to get the best deal when you start to negotiate. As always, remember to check the small print for hidden fees and costs such as arrangement fees.
Personal Contract Purchase
It’s a bit complicated, but a PCP is a way of borrowing money for a car, without committing to keeping it, so it’s useful if you change your vehicle regularly or are easily bored. You pay a 10 – 20% deposit, and then make monthly repayments, typically for 24 – 42 months. The repayments are lower than a HP contract because you are deferring some of the purchase cost of the car until the end of the term. When the contract ends, you can then either choose to hand the car back, or pay the slice of money you deferred to complete the purchase.
PCP contracts have fairly strict rules such as limiting your mileage, and you’re not allowed to sell the car, so you need to check the terms and conditions carefully. Some will also include maintenance of the car, but again, you will need to check.
Leasing
Basically, a leasing plan means you are renting your car, but they are becoming increasingly popular. Also known as contract hire, lease hire allows you to drive away in a brand new car and it can help you avoid the problem of your car losing value. It can also often work out to be as cheap as borrowing, once you take into account interest repayments on a loan.
For example, carleasing.uk are offering a Toyota Aygo hatchback at £147 per month inclusive of VAT for 35 months.
It’s important to note however, that lease hire will include a limit on the mileage, and a financial penalty for every mile you do over the limit. And if the car isn’t returned in good condition you will be charged. There is also a one-off initial charge for delivery, set-up costs, and commissions.
Personal Loans
There are hundreds of personal loans on the market for borrowing money for a new car, so as always, shop around for the best interest rate, or use a loan broker to help you find one. You’re not borrowing from a dealer, so you have more chance of getting a lower interest rate.
The advantage of taking out a personal loan to finance a car, is that you own the car, and so there are no restrictions on its use. The car is yours to do what you like with, and you can always sell it on.
This is Money quote a typical deal for purchasing a Ford Focus. If you put down a £3,000 deposit and borrow £12,750, monthly loan repayments with Santander are £402 over three years and £261 over five years. Tesco Bank quotes £397 and £255 per month respectively.
A word of warning
Finally, before you actually go ahead, remember that 1 in 3 cars have some sort of hidden history, such as having been stolen or a number plate change, so it’s always best to make sure the vehicle you’re buying doesn’t have some kind of gruesome history. If you’ve been unlucky enough to buy a stolen or dodgy car, it can be seized, so you could wake up one morning to see your beloved new motor being towed off by the police. To be sure you’re not buying a hot potato, the AA run a really useful data checking service for £19.99, which can find all this out for you. To go to their data check site, click here.
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