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