Vehicle Financing Rate :

An Introduction To Vehicle Financing For Individuals

By Martin Prescot

For anyone who is considering hiring or leasing a car, whether for single trips or daily life, there will always be that additional concern of how to finance your arrangement. There are a variety of methods which you could use to finance your hire or lease, whether you are a holiday maker or are looking to own your car at the end of your contract.

What follows is a guide to help you to decide which form of financing is likely to be best for your situation. It is aimed at providing you with a brief outline to further your knowledge of the main types of financing, with specific reference to some of the benefits and detriments of each.

Hire Purchase

The traditional way to purchase a vehicle is known as a Hire Purchase. Payment for the vehicle is made over a fixed period of time and once all payments have been made, the vehicle becomes your property. It is usual for a deposit to be paid and for the outstanding balance of the vehicle to be paid by monthly instalments; as determined by the amount of deposit paid, the period of the contract and the sale price of the vehicle.

What makes this an easy method of finance is that the vehicle loan is secured against the vehicle itself. As you do not own the vehicle until the final payment has been made, this means that the loan provider could repossess the vehicle at any time if you fail to make the payments.

It is important to remember that only the vehicle itself is at risk of repossession; not your house or other personal possessions. However, if you sell the vehicle before the end of the agreement, you would still be required to pay the loan back in full.

A 0% finance deal is considered to be the best option but it does require a large deposit. It is also important to note that the monthly payments may be higher than they would be with other finance methods, but the overall sum is likely to be lower.

You should also be aware of the Annual Percentage Rate of the hire purchase agreement before you sign anything as interest rates will vary from dealer to dealer.

Personal Contract Hire

Personal Contract Hire is the leasing of a vehicle for a set time and mileage at a fixed monthly rental. The monthly rental is determined by the cost of the vehicle, the period of the lease, the mileage and the resulting depreciation in the value of the vehicle at the end of the contract.

Sometimes the agreement will include optional extras, such as maintenance packages. Although not mandatory, these might be desirable depending on your mileage and the general usage of the vehicle.

Benefits to Contract Hire include being a method of fixed-cost motoring and the ability to exchange the vehicle on a regular basis. You therefore know from the beginning exactly how much monthly rental you will be paying, with no large one off payments.

Personal Contract Hire can provide a method of hiring both new and used vehicles over a fixed period of time without the responsibility of maintenance or the worry of depreciation in value that is associated with traditional ownership.

Personal Contract Purchase

Personal Contract Purchase allows an individual to lease a vehicle for a fixed amount of time by an agreed monthly payment. It differs to Hire Purchase and Personal Contract Hire because at the end of the contract you have the option to purchase the vehicle for an additional fee or to return the vehicle with nothing further to pay. The monthly payment is calculated by the initial cost of the vehicle, the mileage covered, the period of the lease and the estimated value of the vehicle at the end of the contract. It is possible for the lease to include features such as basic servicing or complete vehicle management packages, if required.

Whilst Personal Contract Purchases usually costs more than Hire Purchases, one of the main advantages is the lower monthly costs. Additional benefits include protection by the Consumer Credit Act, smaller deposits and the ability to defer payments by including them in the final payment if purchasing the vehicle at the end of the lease.

Daily Rental

Daily Rental is suitable for shorter periods of rental, generally ranging from 1 day to 12 months, although it is typical for the contract periods to be less than 12 months. This is a particularly useful method of financing short rentals, such as for holiday makers, if your car is being serviced or if you generally rely on alternative forms of transport. It is common to find stipulations, such as the minimum age for a driver (up to and including 25), a maximum mileage allowance or fuel return policies. You should also be aware of optional extras, including glass or tyre insurance. It is also important to note that many rental agencies require the use of a credit card.

Hopefully this quick guide has provided you with an introduction to financing your hire or lease arrangements and to allow you to further investigate each option to maximise your investment and minimise your expense.

A common starting point is to consider how long you wish to hire or lease your vehicle for, as different options apply to different time scales. It is also necessary to consider whether you wish to own the vehicle at the end of your contract or whether you wish to return it.

Finally, it is important to consider any additional benefits or detriments, such as the ability to exchange your vehicle.

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