| Most car buyers spend hours researching the makes | | | | So in practice, your car still belongs to the HP |
| and models of car before deciding which to buy. Then | | | | company until you have made your last monthly |
| four out of ten rush out to the showroom and sign up | | | | payment. |
| for the car within 30 minutes of stepping inside. | | | | Then if you want to sell your car before you've |
| But will their painstaking research extend to sourcing | | | | completed the HP agreement, there will almost always |
| the cheapest finance package? Probably not. Whilst | | | | be an early redemption penalty - often up to three |
| around 50% of new cars bought privately are | | | | months interest. The HP company will also register its |
| purchased on finance, nearly 20% sign up in the | | | | financial interest in your car with HPI the finance |
| showroom for the finance deal offered by the | | | | tracking agency. This effectively means that you will |
| manufacturer. Unfortunately that could turn out to be a | | | | be unable to sell your car until you have paid off the |
| costly decision. With typical manufacturers finance | | | | HP loan. |
| costing 13.7% per year over a 3 year and including a | | | | Another alternative is Personal Contract Purchase, |
| 10% deposit, they could be throwing some £1,800 | | | | PCP for short, and in recent years PCP has become |
| down the drain. | | | | very popular. Here you also agree the mileage you |
| Take someone buying a new Renault Megane Sport | | | | expect your car to clock up each year. You then pay |
| Saloon Privilege 1.6 and let's assume that it costs | | | | a deposit and part of the purchase price is deferred |
| £16,000 on the road. Including 3 years interest that | | | | until the end of the agreed payback period. Your |
| means the full cost will be £17,384. However, | | | | monthly repayments then repay the balance and the |
| there is a much cheaper option. With a good credit | | | | interest. These schemes are highly flexible as you can |
| history you could get a personal loan at only 5.5% and | | | | select the length of the loan and the size of the |
| end up paying just £15,631 - that's a full saving of | | | | deposit but you'll find that interest rates vary |
| £1,753. This goes to prove the old adage that it | | | | considerably between lenders. The current average is |
| pays to shop around. Rushing to accept the dealers | | | | about 12.8% - still well above the 5.5% rate for a |
| finance package can hit your pocket hard - it's | | | | cheap personal loan. |
| effectively giving back the discount we hope you | | | | At the end of the PCP contract you'll have three |
| negotiated! | | | | options: - |
| OK, I can hear talking about the special finance offers | | | | Pay off the deferred balance and keep the car |
| that manufacturers are forever advertising. Yes, there | | | | Trade in the car using the trade in value to help pay |
| are some really good deals - but always look closely. | | | | off the deferred sum and hopefully leaving a balance |
| Some deals only relate to specific models with a set | | | | towards a new car |
| specification, often the cars that the manufacturers | | | | Hand in the car and walk away with nothing more to |
| are having trouble shifting. A beware some deals have | | | | pay. |
| a sting in their tail. Take Volkswagens' current offer on | | | | This last option is always subject to your cars' |
| the Polo E2. Their deal is advertised at 5.8% with a | | | | condition reflecting normal wear and tear and its |
| monthly repayment of £99 over 35 months - | | | | mileage is in line with the annual mileage you agreed |
| sounds a great deal but look more closely and you'll | | | | when you purchased it. If the recorded mileage |
| find there's a final balloon payment of £3,750 or | | | | exceeds the forecast mileage, then you'll have an |
| alternatively you can trade in your E2 for another | | | | excess mileage charge to pay. The cost per excess |
| Volkswagen. | | | | mile will always be specified in the PCP agreement. |
| The car manufacturers use these deals to promote | | | | One of the big advantages of PCP is that the |
| brand loyalty and encourage another purchase in 3 | | | | guaranteed buy back option effectively protects |
| years time. They know that most cars will be traded in | | | | customers against excessive depreciation of their car. |
| after 3 years rather than pay the large balloon | | | | As you would expect, car dealers take a commission |
| payment. | | | | for selling PCP contracts and to encourage you, you |
| Of course, personal loans and manufacturer's finance | | | | may find they'll agree a bigger discount on your car if |
| are not the only way you could finance your car. | | | | you take their PCP deal. If your lucky, they may even |
| The traditional way to pay for your car is through hire | | | | throw in a low cost servicing package or low cost |
| purchase. With HP you pay a deposit, usually of at | | | | insurance. But take care. You'll need to do some |
| least 10%, or trade in your existing car for at least the | | | | homework to ensure that these extra goodies are |
| same value, and then use HP for the balance of the | | | | truly worth the extra interest charged on the PCP |
| price. The loan is then effectively secured on your car. | | | | contract. |