The type of car finance that a car shopper opts for is one of the most important parts of the whole car shopping process. On average, car shoppers spend only 5% of their entire car shopping time considering and comparing their car finance options. Approximately 50% of car shoppers obtain their car finance from the dealer that ‘sold’ them their car. Ironically, a dealer can be the worst place for a person to obtain finance unless they have shopped around to ensure they have the best deal for that car. One of the biggest problems faced by a car shopper is trying to understand the different types of car finance available. The following is a summary of the major leasing products that are on offer for car shoppers.
Personal Car Finance Products
Personal Contract Hire (PCH)
PCH is a car leasing option for individuals that merely want to drive a new car for a 3 to 5 year period and NOT own the vehicle. It helps to minimise the cost of paying for the vehicle and the driver returns the vehicle at the end of the period. It is a good option for people that want to drive a better car than they can afford to buy outright. For example, a person using personal contract hire could drive a £29,500 Audi A4 Avant for as little as £300.00 per low rate PCP month compared to c.£900.00 per month for a personal loan.
Personal Contract Purchase (PCP)
PCP is a contract that grants a car shopper the option to purchase the vehicle at the end of his/her driving period (3, 4 or 5 years) or to simply hand it back to the contract provider. The driver may incur a cost for excess mileage and unfair ‘ wear and tear ‘. PCP can be advantageous for company car drivers wanting to remove the tax liability on benefit in kind and finance payments are not subject to VAT.
Business Car Finance Products
This is a very popular method for businesses. Contract Hire is best for businesses that want to remove assets from their balance sheet and the headache of selling old cars. Other benefits include the fact that companies can reclaim 100% of the VAT on the service component of the rental cost and 50% of the VAT on the finance rental cost. At the end of the 3, 4 or 5 year term, the driver does not have the right to purchase the vehicle.