Finance
HIRE PURCHASE - HP
HP is a traditional and straightforward way to finance a new car
- HP is simply a loan secured against the car
- There's no mileage contract
- It's ideal if you want to own the car at end of contract
- Hire Purchase is the traditional way to finance a car purchase. You pay off the entire price of the vehicle through a series of monthly payments. At the end of the contract period the vehicle becomes your property.
The monthly payment is determined by the amount of deposit paid, the period of the contract and the sale price of the vehicle.
HP is very similar to borrowing a sum of money from a bank and paying it back over a fixed period of time, with interest. Hire purchase is a type of secured loan which are often preferred over alternative (unsecured) loans because they allow a greater borrowing limit. The term "secured loan" means exactly that, a loan that the lender can secure against an asset (in this case, a car).
WANT TO LOWER YOUR MONTHLY PAYMENTS?
- Consider financing the car over a longer contract period - perhaps a 60 month contract will make your car of choice more affordable.
- The amount of deposit you are able to put down will dramatically affect your monthly payments. Higher deposit means lower payments.
PERSONAL CONTRACT PURCHASE - PCP
Personal Contract Purchase(PCP) is our most popular choice for motor finance due to its flexibility, low initial deposit commitment, low monthly repayments and guaranteed value for the vehicle at the end of the agreement.
This type of finance is ideal if you plan to change your car at the end of the contract period.
Using a Personal Contract Purchase (PCP) plan the customer will make an initial payment, followed by a series of monthly payments and a final large, but optional payment, called a GFV.
A PCP plan will enable the customer to purchase a new vehicle with lower monthly repayments by deferring a large amount of the total cost of the vehicle to the end of the contract - this amount is known as the Guaranteed Future Value (GFV), often referred to as the optional final balloon payment. The GFV is set by the finance company and is based on the chosen vehicle and the annual mileage stipulated by the customer. The annual mileage can be set between 6k and 30k per annum and will affect the figure given for the GFV.
"With PCP your monthly payments cover the loss in value of the car over time - you're basically paying the monthly depreciation of the car plus the interest on the outstanding balance. At the end of the contract you have the option to buy the car at a previously set price".
The Guaranteed Future Value plus the customer's deposit is subtracted from the cash price of the vehicle and the monthly payments are based on the balance (plus interest on the balance and the GFV). At the end of the agreement the customer will have a choice of making a final lump sum payment in order to complete the agreement, or to simply return the car to the finance company without any further obligation.
By only repaying the difference between the cash price and the optional balloon payment you are only financing the depreciation of the car.
At the end of the contract you have four options:
- Return the vehicle to the finance company. As long as you have not exceeded the agreed mileage, you will have nothing more to pay.
- Keep the vehicle by paying off or refinance the outstanding balloon payment or GFV.
- Trade-in your car for a new car. You can come back to Hylton and part exchange your vehicle for the next new vehicle. If the trade-in value is greater than the GFV, the difference can be used towards a deposit on the next agreement.
- Sell the vehicle privately and keep any profit over and above the GFV.
Within a PCP quote there are some things you can do to lower your monthly payment.
- Consider financing the car over a longer contract period - perhaps a 48 or 60 month contract will make your car of choice more affordable.
- The amount of deposit you are able to put down will dramatically effect your monthly payments. Higher deposit means lower payments.
- It is worth calculating your annual mileage accurately rather than guessing. If you only do 6000 miles per year but have left your annual mileage figure at 10000 miles, your balloon payment will be lower and you will be paying more unnecessarily.
LEASE PURCHASE
Lease Purchase is ideal for the more expensive car and for customers wanting even lower monthly payments
The benefits of lease purchase are:
- low monthly payments and APR
- Lower and higher deposits available
- No mileage contract
- You can Re-finance the Residual Value
HOW DOES IT WORK?
Lease Purchase is structured in the same way as a Personal Contract Purchase(PCP) in that a capital lump sum amount, known in this instance as the Residual Value (RV), is deferred to the end of the agreement and this must be settled to gain outright ownership.
As with PCP, the RV is based on the type of vehicle and the suggested annual mileage covered by the vehicle. By deferring a lump sum to the end of the agreement, the RV reduces the regular monthly payments and makes more expensive vehicles far more affordable.
As a customer you will benefit from a slightly lower finance rate with a Lease Purchase product as, unlike PCP, there is no guarantee offered at the end of the agreement in terms of handing the vehicle back to the finance company. In other words, unlike PCP, Lease Purchase offers no option to walk away from the vehicle at the end of the contract.
It is your responsibility then to settle the final RV (or balloon payment) either though additional finance, cash or settlement by part-exchange.
"Put simply, Lease Purchase has a lower monthly payment than PCP, but you have to purchase the car at the end of the lease term"
Lease Purchase repayment periods are typically taken over 2, 3 or 4 years and settlement can be made at any stage of the agreement. Deposits for Lease Purchase are normally a minimum of around 10% and a maximum of 50% of the total vehicle price. Because the funder is exposed to less risk, customers will normally benefit from a slightly lower interest rate and there will be no fixed mileage contract.
WANT TO LOWER YOUR MONTHLY PAYMENT?
Within a Lease Purchase quote there are 3 things with which you can lower your monthly payment.
- Consider financing the car over a longer contract period - perhaps a 48 month contract will make your car of choice more affordable.
- The amount of deposit you are able to put down will dramatically effect your monthly payments. Higher deposit means lower payments
- You can adjust the RV (the amount you pay at the end) by setting a higher or lower annual mileage and, because you are not contracted to a certain annual mileage, this can be set at any level depending on how large you want the RV to be. Any adjustment in the RV will effect you monthly payments. You need to be careful to avoid negative equity with a lease purchase agreement since a car's RV will considerably more if it has covered 10k miles a year rather than 30k.
Another way of putting this is that if you state your monthly mileage as being far lower than you actually travel, you'll end up paying more at the end of the contract - i.e the finance company will expect you to pay the balance on a car that has, as far as they are concerned done fewer miles than it's actually done. The risk is that you can end up paying more for the car at the end of the contract than it's actually worth.
CONTRACT HIRE AND PERSONAL CONTRACT HIRE AND LEASING.
WHY GO FOR CONTRACT HIRE CARS?
Contract Hire and Personal Contract Hire are a simple, cost effective and an easy to manage way of financing a new car.
WHAT IS CONTRACT HIRE?
In return for an agreed number of monthly payments (usually over 2 or 3 years) and an upfront deposit payment you will be delivered a new vehicle. The finance company supplies the vehicle and takes responsibility for its depreciation, funding costs and administration costs. Although the car will be your responsibility it will never actually be owned by you and, when the contract ends, it will simply be collected by the finance company on an agreed date. You need never be concerned with the depreciation of the car or the hassle of selling it because you can return it and walk away.
The rental calculation or monthly payment is based on the length of the agreed contract and the annual mileage. Most contract hire rates are quoted at an annual mileage of 10,000 miles per annum but can be quoted at both higher and lower mileages. The higher the agreed annual mileage, the higher the monthly payment and vice versa.
Benefits of Contract Hire and Personal Contract Hire
- Low initial payment - usually 3 months payments upfront
- Fixed monthly costs - helping you budget
- No depreciation concerns - you don't have to sell the car at the end of the term so you don't have to worry about its depreciation
- No depreciation risk
- No disposal problems
- Choose a more expensive car
Benefits for Businesses
- More capital available for your business
- Off balance-sheet borrowing
- Up to 100% of VAT reclaimable for VAT registered companies
- 100% of VAT reclaimable on maintenance
- Minimal administration in purchasing and disposing of vehicle