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A guide to new car finance deals and schemes

Going for new car finance deals is not as easy as it seems because you need to understand the implications of the contracts you are signing. It also requires budgeting how much you can afford to pay in a month and how this would fit to other running expenses you have in your life. Knowing the various schemes out there is a good starting point to determine which ones might work for your situation and needs.

Personal Contract Purchase (PCP)

It is one of new car finance deals which is very similar is to a hire purchase or hire contract scheme. You decide which car you want, the length of the contract, the mileage you’re going to run and the amount of deposit you will put down.

In short, it is a ‘conditional sale agreement’ because buying the car at the end of the contract is not an obligation, but an option. Monthly and final payments to acquire the car are set according to the amount of deposit. The major difference is that the financing company has full ownership of the car until the end of the contract, where you can purchase the vehicle or walk away without further obligation. A balloon payment or Minimum Guaranteed Fund Value is the final amount of money that you have to pay to the financial institution and this amount is also determined by them. Your obligations are limited to paying road tax while in some cases, there may be car maintenance stipulations.

Hire contract

Businesses commonly use this form of contract to save on capital outlay expenditures that are huge such as purchasing new vehicles. Contract period runs anywhere from 2 to 4 years. At the end of the contract, the lessee returns the vehicle which will be disposed or sold by the financing company. Auto dealers offer this alternative.

Hire purchase

When a client cannot afford to pay the full price of a new vehicle, a hire purchase contract can be drawn up. A deposit is required from the client to pay for the vehicle but in effect, the client leases the vehicle monthly.

Once payments equivalent to the original total purchase price of the vehicle plus accrued interests are reached, the client may buy the vehicle at an agreed price or return the vehicle to the dealer or financing company. Its main advantage is that the cost of acquiring a new vehicle is spread over a longer time period. The lessee can also pre-terminate the contract, but penalties are applied.

Tips

There are many nuances to various types of new car finance deals that you might be making. Make sure you understand the terms and implications before signing any deal or contract. Avoid a bad deal and seek professional advice for legal and financial pointers to ensure you are not going to suffer losses from interest rates and charges.

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