Often one of the forgotten questions, but a very important one… “What's the best way to fund your next car?” It’s easy to go straight to choosing the car, decide on the perfect model and then determine what the best option is in terms of funding it, to suit you and your situation.
In this blog we outline an easy-to-understand guide to help identify which method of funding may be best for you. We know there's a lot to consider and if you'd like to discuss this more or if we haven't answered your particular question, please don't hesitate to speak to our Account Manager Team.
We’ll keep this as jargon free as possible, but if you need some help, please see our FAQ here.
Cash Buy
The traditional route, which we have likely all done or considered at some point. Depending on your situation, buying cash might be the best option for you. Clearly the simplest and most straightforward option, you pick the car, pay for it and it’s registered to you. You maintain the car with no ongoing debt or monthly payments to think about.
The biggest concern with buying cash is the depreciation and risk involved with having an ageing car; with MOTs, no warranties and more maintenance work required the older the car gets.
When considering buying with cash - you’ll be the one in control, which can be a really nice sense of comfort and mean you can sell at any time or at that stay in the same car for 10+ years.
Contract Hire (Personal (PCH) or Business (BCH))
As we summarise in our blog about 'leasing new or buying a used car', Contract Hire is the most “hassle free" and a fixed-cost way to fund a new car.
A Contract Hire agreement is generally the most cost-effective method, for a few reasons. You will have fixed monthly payments for your lease term, your road tax is included in the agreement and you will have no concern about deprecation or re-sale of the vehicle at the end of your contracted agreement. In saying this, you are tied to your agreement for the full term and there are stipulation and exit costs if you want to exit early.
Who would a Contract Hire agreement be best for? Both a Business and a Personal user can take on a Contract Hire agreement on only new cars. For a Personal user, VAT is included and you simply pay for the use of the car for a term and then hand it back when your agreement is up (just like a mobile phone plan). For a Business user who is VAT registered, you can claim back the VAT payable on each monthly payment.
Personal Contract Purchase
Over the last 10 years, a Personal Contract Purchase (PCP) agreement has become one of the most popular ways to fund a new or used car. The PCP is a form of Hire Purchase (HP), a PCP agreement incorporates the overall value at the beginning of the contract, determining the monthly payments. At the end pf the agreement, a balloon payment value is set so that you can purchase or sell the car at this price, or alternatively you can hand the car back to the finance company.
A PCP agreement gives you the flexibility of these options but can often be more expensive than a Personal Contract Hire, given the value of the car is incorporated in the contract and please note on a PCP, your Road Tax is only included in year one of the agreement.
Who is a Personal Contract Purchase agreement for? Again both Personal and Business Users can take on a PCP, same goes, if you are VAT registered you will be able to claim back the VAT Payable on each monthly payment. A PCP agreement will be right for you if you want flexibility. You may not have the cash to buy a car in full now and want to in the future, or you may want to run a car for 2 years and exit and sell the car at year 2 of your 3 year agreement. The options are endless. Our Account Manager team are always here to adivce you at any point of your PCP.
Hire Purchase
A Hire Purchase is an agreement where you’ll have either a large deposit and the rest in monthly instalments, or have an equal spread of payments over the lease period. For the duration of the agreement the finance company will be the registered owner, then at the end of the term you will pay a transfer fee and become the owner of the vehicle.
The beauty of an HP is that you are in control of the agreement and it is tailored to suit you. Similar to a PCP or Cash Buy, you have the option to sell the car during the agreement or at the end - you will just need to settle the finance first.
Who is a Hire Purchase agreement for? It is a good option if you have a lump deposit (but not enough to Cash Buy) to pay towards the HP, and wish to own the car at the end. Interest rates are set from the beginning.
Personal Loan
The most historic way to fund a car, if you could not afford to pay cash for it. On a Personal Loan, you borrow a fixed amount, then repay it over a fixed number of months, with interest. You are effectively a cash buyer of a car with a personal loan.
With a personal loan, there will be less discounts directly from the dealerships on vehicles, it will be more based on the car’s value.
Who is a Personal Loan for? If you already have a loan in place with a bank, this might be a better route for you.
Summary
We know you’ve got more important things to do than be reading the internet determining the best way to finance your next car! At Pike + Bambridge we will spend half an hour (max) analysing and determining the best finance method for you, with you.
We work with many finance partners, and we’ll ask you some particular questions (at our discretion) to help determine the best place for you to get finance.
We are increasingly seeing our clients (4 out of 5 currently) lean more towards running a vehicle for 2-4 years and then moving into a new car. It’s entirely up to you how you wish to fund your car and our team are trained experts in all options.
Our top pick would be the Personal Contract Hire, as the most general and well suited for the majority of our professional clients. However, we’ll support you to ensure you understand all of your options.
