When you’re looking at getting a new car, it can seem as though there are so many different ways to pay for it—each one more complicated than the next. However, the different options are there to fit different people, and choosing the right one for you can certainly help your finances.
A lot can depend on the amount of savings you already have and your current credit score, but there are (bad credit) car leasing deals that can help you get the car you need. Whatever your financial situation, it is worthwhile taking the time to understand the options that are available to you. The most obvious way to buy a car is to pay for it in advance. You pay the money, you own the car—simple. Unfortunately, people tend not to have that amount of money lying around, and if they do, they want to spend it in other ways.
On the plus side, the car is yours to do whatever you want with it, and you are not limited by how many miles you can do, or other stipulations. You take on all the responsibility for running the car, and the deprecation of it.
Hire Purchase (HP)
If you don’t have the cash to pay the car off in full, then you can look at doing an HP. In a HP arrangement, you hire the car until you’ve paid off the value in full, at which point, you own the car.
You will make an upfront payment of a certain percentage of the car, and the rest is paid on a monthly basis. The bigger your initial deposit, the less you will pay in interest on the repayments.
This option allows you to drive the car without mileage restrictions, and you can easily budget in order to meet the monthly repayments.
Personal Contract Purchase (PCP)
A PCP is very similar to an HP, with one key difference. With a PCP, you pay an upfront deposit, and then pay the rest in monthly installments. However, with a PCP you have the option to either hand the car back, or pay off the remaining balance so that you own it.
The monthly payments with this option tend to be lower, as the final optional payment is quite large, which gives you plenty of flexibility. Your mileage is restricted though, and if you choose to hand the car back it will need to be handed back in a condition that meets the terms of the agreement.
Personal Contract Hire (PCH)
Buying a car isn’t necessarily the right option for everybody, and a PCH offers a good alternative. For people with a poor credit score, this can make the right car more accessible, and offer them a convenient package.
A PCH works in a similar way to a PCP, but you don’t have the option to buy the car at the end of the agreement. The payments are likely to be easier to make, and it makes budgeting much easier.