Personal Contract Purchase agreement
This is where the end value of the car is agreed at the start of the contract, so you can plan your payments accordingly. Payments are often less than what you’d pay in a hire purchase agreement as you pay the full price of the car, plus interest but minus the guaranteed future value of the car. You must pass credit checks before you’re eligible for a PCP agreement.
To lower the monthly cost, you can place down a large initial deposit if you can afford it. Saving a lump sum for a large deposit is easier than saving up for a car, while reduced monthly payments can really help out too. Always evaluate your current monthly payments before you agree to a finance agreement, as being behind on your payments can lead to financial issues.
When it comes to the end of your PCP agreement, you can either pay off the future value of the car to become the full owner, hand back the keys or trade the car in as a deposit for a new finance agreement.
Be aware though, if you have exceeded the forecasted mileage on the car, there will be further charges to pay. This is because more miles decrease the value of the car. Also, any damage to the car will be charged to you, so you must be prepared to take good care of the vehicle.
Hire purchase agreement
This is relatively similar to a PCP agreement. It involves monthly payments with the option to purchase the car at the end of your agreement based on its new value.
A usual deposit for a car is 10% of the car’s value, but often you can pay more to reduce the follow-up monthly payments. The rest of the car is then payed off in instalments over a period of one to five years. The longer this period, the less you have to pay each month but due to interest charges, the total cost of the car becomes higher.
Buying a car by credit card
If you want to buy a car by credit card, it’s best to speak to your car dealer first as some dealerships don’t accept this method of payment.
Paying through your credit card company can give you added protection on the full purchase cost (often as long as the value of the vehicle is over £100 and less than £30,000). Of course, you have to be able to meet your monthly payments too.
This method allows you to put down an even lower deposit than 10% and pay the rest of the vehicle off using a debit card. It’s best to consider all options here, as often the interest that you pay on a credit card could be significantly higher than that of a finance agreement.
As we can see, there are a range of finance options available to you for purchasing new cars — allowing you to drive that dream car you’ve always wanted without forking out loads of cash.
"Save up what you can for a significant deposit and always make sure that you can cover the payments before signing any agreements."
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