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Personal Contract Purchase is highly attractive and increasingly popular. It combines low, fixed monthly payments with exceptional flexibility at the end of the agreement.
Your car's guaranteed future value is calculated (based on agreed mileage and age) and becomes deferred as a final payment (“balloon”).
Crucially, you don't commit to buying the car at the outset. Instead, you use it for 24-48 months, deciding at the end of the agreement which of the following options you prefer:
1. Purchase the car at an agreed minimum residual value ;
2. Part-exchange the vehicle for another ;
3. Sell the vehicle privately and settle the balloon ;
4. Return the car ( subject to mileage and condition) with nothing more to pay (e.g. if depreciation resulted in negative equity) .
PCP is ideal if you're opting out of a company car scheme. You use your company car allowance to fund your PCP monthly payments without paying company car tax.
Hire purchase is a simple, straight forward way to spread the cost of buying a new car.
It is a fixed rate finance, with a fixed monthly payment. The deposit you pay is flexible - typically between 10% to 50% of the vehicle cost.
The remaining balance, plus fixed interest, is repaid in equal instalments over an agreed period (12-60 months).
Hire purchase with a balloon offers lower monthly payments than normal hire purchase. The difference being, at the end of the agreement, you can make a final lump sum payment (“balloon”) so as to own your car.
It is a fixed rate finance - but with a lower fixed monthly outlay since you defer repayment on some of the borrowing. At the end of the agreement, options include car purchase, refinance, part exchange or resale.
The deposit you pay is flexible - typically between 10% to 50% of the vehicle cost. The deferred balloon element is calculated on the estimated future resale value of the car.
The difference, plus fixed interest, is repaid in equal instalments over an agreed period (12 - 60 months), plus a final balloon payment.
Balanced payment is a finance option resembling Hire Purchase (HP) for contracts over £25K. Unlike HP, where interest is fixed, Balanced Payment tracks changes in the finance house base rate. As rates fall or rise, so does the interest charge you pay over the period of the contract.
After the initial deposit, the balance is repaid in fixed monthly instalments over an agreed period (12 - 60 months). At the end of the agreement, any interest variation is reconciled and settled as final credit or a charge. Options include a deferred 'balloon' final payment or lump sum payment to settle the agreement early.
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