Thursday, 7 April 2016

5 Reasons Why Higher Purchase is Still the Preferred Way to Finance a New Car

Multiple Car Financing Options

But HP can still be the way to go...

Since the birth of the internet there are been an ever growing number of ways to buy a new used car. But it's over the last 15 years that car financing has really become multi-faceted.

Back in the good old 20th century you really only had a couple of ways of paying for a new car. You could save up the money and become a cash buyer. You could go to your local bank and ask for a loan, and you could access higher purchase through the dealers that was selling the car you wanted to buy. 



But the modern finance era gave birth to multiple systems to lend money for  a new motor. 

Today's options include:

  • PCP Personal Contract Hire - A method that allows you to make reduced monthly payments for the duration of contract. This is very similar to leasing, where you never own the car. At the end of the term you can give the car back and renew. You can pay off a balloon payment at the end of the term and own the car. You can give the car back and walk away. 
  • LP Lease Purchase - Similar to the above method, you lease the car for a set period of time and give it back at the end and/or renew for another new or used car.
  • Bank Loan - This traditional method is still preferred by much of society and is a trusted way to finance a new car.
  • Higher Purchase - This method results in larger monthly payments but you usually own the car at the end of the agreement without any balloon payment to make. 
There are other options too, including leasing. 

One of the main hindrances with the new ways to borrow is mileage limits. 

A mileage limit of 10,000 per year is almost mandatory with PCP and LP deals. This is because the car finance company are likely to own the car after you've finished with. So they want a guaranteed minimum value for the car once they have it back. Capping a mileage allowance in one such way in which they achieve this. They also take into consideration that the car will/must be of reasonable condition after the owner has completed their agreement. 

If you plan to access LP or PCP it's good to buy (or hire if you prefer that term) a car that holds its value well. Car's with a high value retention rate means that a finance company will lose less when you give the car back to them. That often means lower monthly repayments for you.

So what kind of cars hold their value well??

Not easy to answer but here are some basic guides I like to use.

  • German diesels
  • Mercedes
  • Diesel Estates
  • Range Rovers
There are clearly going to be exceptions to this rule but you need to start somewhere. 

Here's some car manufacturers to avoid for PCP or LP

  • Kia
  • Suzuki
  • Hyundai
  • Peugeot
  • Renault 
  • Citroen
Again there will be many exceptions to this rule too. 

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