Choosing the Right Finance Plan for Your 172 Reg Car

The 172 reg cars are on the forecourt and the 172 deals are now available, but what is the best way to finance your new car. If you don’t have savings to use you will have to put a finance plan in place. For most people, there are three main options:

  • Personal Contract Hire (PCP)
  • Hire purchase
  • Personal loan

Each has its advantages and disadvantages so it’s important you understand how the options work so you can decide which is best for your personal circumstances.

Personal Contract Hire

With a PCP finance plan, you will pay a deposit which is a percentage of the on the road cost of the car. This could be between five and 30 percent depending on the car make and model and the deals that are available. You can use your existing car as a trade-in to help pay this deposit.

The remaining balance after the deposit is then split in two – an amount you pay back and the final payment amount.

You pay the first part back by making monthly repayments over a set period of time. This could be, for example, three years.

The final payment is what is left at the end of that term. In most situations, you have three options:

  • Pay the final payment and keep the car
  • Part exchange the car to get a new one
  • Hand the car back with no further payments to make

PCP financing offers a range of benefits. This includes low interest rates and low monthly repayments. In other words, PCP makes buying a new car more affordable. Also, PCP financing is arranged by the car dealer so doesn’t come with the hassle of shopping around for a suitable loan.

Hire Purchase

Hire purchase arrangements are the other main finance option you get at your dealer in addition to PCP. However, there are a few crucial differences you should be aware of.

The main difference is there is no final payment. Instead, you pay a deposit then the remaining balance in full is financed over the loan period. As a result, the monthly repayments of a hire purchase agreement are usually higher than PCP, although, like PCP, the interest rates are typically low, particularly when you compare them to personal car loans.

One of the key advantages of hire purchase is there is no mileage requirement. There is a mileage limit, however, with most PCP options. If you go over the limit, you must pay a fee for each extra kilometre you drive. With hire purchase, you can drive as many kilometres as you like.

Another advantage is that hire purchase agreements are, like PCP, arranged directly by your dealer, saving you time.

Personal Loan

You can get a personal car loan from a range of sources to purchase your new 172 reg car. This includes banks, credit unions, and building societies. One of the advantages of a personal loan is that you own the car as soon as you drive it away from the dealer. With PCP and hire purchase financing plans this is not the case – you don’t technically own the car until you make all the repayments.

While there are good deals available, particularly if you have a good credit rating, personal loans are typically the costliest way to finance your car. This is because they have higher interest rates so have higher monthly payments and a higher overall cost.

The key point is that, regardless of how you structure the payment of your car, the car itself reduces in value at the same rate whether it is bought outright from savings or is financed on PCP, HP, or a personal loan. It is all about finding the most suitable structure for your current circumstances and planned change cycle. It is also important to speak to people who are knowledgeable in the area. There are, however, plenty of options available.

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