Car Finance Explained in Skipton, North Yorkshire

Car Finance Explained

16 June 2022

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When it comes to purchasing a used car, there may be many reasons you’ve chosen to go down that route rather than buying new. For a start, buying a used car doesn’t result in a loss of value in the way that a brand new car immediately loses value the minute you begin driving it. In this article, we’re going to look at how you can finance a used car, and what the benefits of doing so are. First, we need to look at the types of financing options to see how they differ.  

Car Financing Options

Most dealerships sell a variety of new and/or used cars. They will typically also be able to offer cars on finance dependent on an affordability test. 4 of the main ways that cars on finance are sold are by hire purchase, PCP, Personal leasing and personal loans. The length of time it takes to be approved by different financing options also differs depending on the dealership. Buying a car from a dealership also means that the dealership has professionally inspected each car, whereas when you buy privately unless you have mechanical experience, or it is checked over by a mechanic first you are putting yourself at risk of fraudulent sales. 

With regards to used cars, many are often sold by individuals which limits the possibility of purchasing on finance.

Top Tip - get a HPI check if purchasing privately, for a small fee you can see any outstanding finance, whether the vehicle has been a write off, any mileage discrepancies and the MOT history detailed with the DVLA.

Hire purchase

This is effectively an agreement where you pay a deposit and buy more ownership with every instalment. You do not fully own the vehicle until the last the instalment has been paid made.

Pros

Cons

You typically only have to provide a deposit of 10%.
You do not own the vehicle while you’re still paying down the capital, meaning you cannot sell the vehicle without the lender's permission.
It dramatically reduces the upfront cost. There may be charges for paying back early as this deprives lenders of interest. 
Interest rate is fixed for the term of the finance which in turn helps with personal budgeting. The car can be repossessed if you miss payments.
At the end of the term, you fully own the vehicle. Higher monthly payments than a PCP or Lease agreement.

PCP

Otherwise known as a personal contract purchase, PCP’s can offer more flexibility in that you have use of the car, but what happens at the end of your term can go in three different directions. You can either pay a large lump sum, known as a balloon payment, which purchases the car outright, return the vehicle and walk away, or refinance the vehicle. You typically pay a large deposit or three month’s worth of instalments up front in exchange for lower interest rates. Essentially this works like a longer term car hire, and you must keep the car in good condition i.e. sticking to agreed mileage limits. The cost of plans are based on an MGFV or minimum guaranteed future value.

Pros

Cons

3 different outcomes depending on what you want to do when the term is up. You pay a larger deposit, typically around 3 months worth of instalments.
Lower monthly payments due to balloon at the end. You have to ensure that you stick to the agreed terms and conditions, i.e. mileage and condition.
You pay more interest as you aren’t paying off as much capital

Personal leasing

Fundamentally speaking, personal leasing is exactly the same as PCP but that you have no option to buy the car therefore you’re effectively renting the car for an agreed term. The type, length of contract and added extras determine the cost of the plan. Because you’re only renting the vehicle rather than paying down capital, the monthly instalments tend to be cheaper than PCP and HP agreements. Leasing is also a good option if you like to chance car regularly, as you can often open an agreement for 24 months up to 60 months.

Pros

Cons

Essentially lets you hire a car longer term with competitive rates. No option to purchase the car after the term has expired.
Low monthly instalments Damage i.e. scratches and alloy scuffs are expensed at the end of the term.
Potential for early termination liability

Personal loans

This is where you secure a loan from a bank or credit lender to pay for the cost of a car outright, then make repayments to said lender. Benefits include not having to pay for a deposit, you will own the car outright, but this is counterweighted by potentially higher APR rates from the bank or credit lender because unlike PCP agreements you’re borrowing against the full vehicle value rather than the full value minus the balloon. Of course if your credit rate is good, you can often get a favourable APR that matches of even beats those of PCP or HP agreements. It all comes down to your personal financial situation.

Pros

Cons

You can own the car outright, up front. Higher Interest rates and APR unless you have a good credit rating
You do not need to worry about sticking to agreed terms than with the other options. Does not give the same options of returning a car at the end of the term.

So what finance options do we offer?

Similarly, we do offer some of the same services as other car dealerships but with competitive interest rates.

PCP - we offer PCP plans up to 48 months, typically 24 or 48. At the end of the term we offer the main options in that you can pay a lump sum, sell the vehicle back to us, or return the vehicle to the finance company at no cost to yourselves (subject to mileage and condition). You can even use this in a part exchange for a new PCP or car purchase! 

Hire purchase - we offer periods between 12-60 months depending on your requirements. The deposit amount varies from between 0 to a capped 50% of the value of the vehicle depending on the model.

So what are you waiting for? Visit our website today to see how you can purchase a new used car with our range of finance options.

Financial Conduct Statement

Peter Watson (Skipton) Limited, t/a Peter Watson Garage is authorised and regulated by the Financial Conduct Authority (FRN: 656952). We act as a credit broker not a lender. We can introduce you to a limited number of lenders who may be able to offer you finance facilities for your purchase. We will only introduce you to these lenders. We may receive a commission payment from the finance or hire provider if you decide to enter into an agreement with them.  The nature of this commission is as follows: we receive a commission based on a percentage of the total amount of finance taken by the customer. The commission received does not affect the amount you will pay under your finance agreement. You can request for us to disclose the amount of any commission received. You may be able to obtain finance for your purchase from other lenders and you are encouraged to seek alternative quotations. If you would like to know how we handle complaints, please ask for a copy of our complaints handling process. You can also find information about referring a complaint to the Financial Ombudsman Service (FOS) at financial-ombudsman.org.uk. 

Peter Watson (Skipton) Ltd, Otley Road, Skipton, North Yorkshire, BD231EY, Registered in England and Wales number 00556022.

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