Buying a car outright is not an option for most, which leaves financing the automobile as the best option. This can be an excellent way to get behind the wheel, but it is important to be aware of the different types of financing so that you get the right deal for you.
Leasing, or Personal Contract Hire (PCH), is renting an automobile for a long term (often 24 or 36 months). You make relatively low payments at a fixed rate and then simply return the vehicle at the end of the agreement. This means that you do not have to worry about resale value and depreciation, plus you can arrange a new lease on a newer car. You never own the vehicle and there will be restrictions in place, such as an agreed mileage (you will pay a fee if you exceed this).
Personal Contract Purchase (PCP) is the same as PCH, but instead of returning the keys you have the option to purchase the automobile with a balloon payment at the end of the agreement. With PCP, you will be paying off the depreciation of the vehicle instead of the value of the car.
This works by the leasing company, like Car4Leasing, estimating a Guaranteed Future Value (GFV) – the expected value once the agreement ends. This results in relatively low monthly payments, but the balloon payment can be costly. As an alternative to buying at the end, you can hand the car back to settle the deal or part exchange for a new car.
Hire Purchase (HP) involves paying an initial deposit and then making fixed monthly payments that will pay off the value of the automobile. Once you have reached the end of the agreement, the vehicle is then yours. Although monthly payments may be higher than other options, it is a great way to drive (and eventually own) a car that you would not have been able to afford otherwise. You will also not have to worry about excess mileage charges as these are not part of the agreement.
These are the three main types of financing to consider. What is right for you will depend on your particular needs for a vehicle, but all can be beneficial and prove to be a much more manageable way to get behind the wheel of a new automobile. In some cases, you can drive brand new cars every few years, or alternatively, you can eventually own the vehicle yourself.