For some people owning a new car is only possible through car finance, but with so many options to choose from it can be hard deciding what's best for you. What might be a positive for one driver may not be so good for you. Here are the most common car finance agreements and there pros and cons.
Contract Hire
Contract Hire is the most popular car leasing option with both companies and individuals. It can be thought of as long term car rental as you make monthly payments over a fixed period of time, normally between a year and 3 years.
The amount you pay each month will be agreed based on the price of the car and the expected final value, taking into account depreciation and mileage. Simply put with Ford contract hire and other manufacturer's contract hire agreements you will pay the difference between these figures via monthly payments.
Pros of Contract Hire
• Contract hire is ideal for anyone that would like to drive a new car every few years, you'll benefit from the newest developments and latest technologies.
• Because the leasing company still owns the car they are responsible for all maintenance and associated costs. Most contract hire agreement includes maintenance packages, so you won't have to factor in the cost of servicing or repairs.
• Payments will be fixed each month making budgeting simpler.
Cons of Contract Hire
• You will never actually own the vehicle, at the end of the agreement you have to return the car as there is no option to buy. (This could also be a pro if you want to be able to return the vehicle and not have to worry about re selling it in the future).
Hire Purchase
A Hire Purchase agreement is similar to a mortgage (but not such a big commitment!) you pay an initial deposit and the remainder of the balance monthly over a fixed term. Effectively it's a mix between leasing and loaning, as the car is 'loaned' to you until it has been paid for.
Cons of Hire Purchase
• Unlike Contract Hire the future value of the car is not taken into account when monthly payments are calculated. Depending on the length of your agreement and deposit you could end up paying more for the car than you would realistically be able to sell if for in the future.
• If you wish to re sell the car during the contracted term you will have to pay off the money you still owe in full and some dealers may charge an early settlement fee.
• If you wish to re sell the car during the contracted term you will have to pay off the money you still owe in full and some dealers may charge an early settlement fee.
Pros of Hire Purchase
• At the end of the agreement you own the car, provided that all payments have been settled. Hire Purchase allows you to own a car you might otherwise not be able to buy.
• Most hire purchase agreements include car maintenance packages.
Personal Contract Plans (PCP)
Personal Contract Plans or personal leasing probably offers the lowest monthly repayment options. Like Hire Purchase you pay a deposit, but the monthly instalments are calculated by taking away the deposit and the figure guaranteed value (FGV) i.e. how much your car will be worth at the end of the agreement, from the retail value. At the end of the agreement you can pay off the FGV so you own the car, return it to the dealer or use the difference as a deposit for another car.
Cons of PCP
• The resale value of the car is determined by the dealer, and it could be very steep. If you decide to keep the car you will have to pay this 'balloon' payment.
• The number of miles you can do will be restricted, and you will face penalty charges if you exceed the mileage limit.
• Maintenance is not always included in a PCP agreement, but is sometimes included as an extra. If you decide to maintain the car yourself you must ensure it is keep in good condition, especially if you intend to return the car.
• The number of miles you can do will be restricted, and you will face penalty charges if you exceed the mileage limit.
• Maintenance is not always included in a PCP agreement, but is sometimes included as an extra. If you decide to maintain the car yourself you must ensure it is keep in good condition, especially if you intend to return the car.
Pros of PCP
• Monthly payments are generally lower than both Contract Hire and Hire Purchase.
• If at the end of the agreement the car is worth more than the FGV you can keep the car and sell it on and make a bit of cash, but if it's worth less you can simply hand it back.
• PCP agreements are generally very flexible, so if you can't pay as much one month but can pay more the next this is normally ok.
• If at the end of the agreement the car is worth more than the FGV you can keep the car and sell it on and make a bit of cash, but if it's worth less you can simply hand it back.
• PCP agreements are generally very flexible, so if you can't pay as much one month but can pay more the next this is normally ok.
Amy Sawyer is an online marketing executive currently researching Ford Contract Hire |
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