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Car finance options explained
20 September 2016

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car finance

When you buy a car from a West Midlands dealer, you will almost certainly be offered a range of finance options. Financing is a significant profit stream in the car trade. It's important to understand what these different packages involve and what the terms mean. Check all your options before you sign anything, including whether private finance offers a more cost effective route to putting a car on the road.

There are three basic plans: hire purchase (HP), a personal loan, or a personal contract plan (PCP). Each has its own advantages and drawbacks, and your choice should be based on what suits you best.

If you opt for hire purchase (HP), you don't own the car until the last payment is made, so you can't sell the car during the HP period. You will need to pay a deposit (typically 10%) and the remaining balance, with interest, is paid off in equal instalments over a fixed period of time. The advantage of HP is that you can budget for your monthly payments. The downside is the cost, which may work out high compared with an alternative like a bank loan.

A personal contract purchase (PCP) is ideal for anyone who changes their car regularly. You pay a deposit, followed by low instalments each month. At the end of the contract period, you can purchase the car outright, or sell it to pay off the remaining balance. With this option, mileage is usually limited.

Personal leasing is similar to PCP, but without the option to purchase. Take the annual percentage rate (APR) into account with this option, as it can vary from deal to deal.

Before accepting any dealer's plan, you should also check the APR on a personal bank loan and your credit card. The APR may seem high if you need long term finance, but over the short term, it could prove more cost effective.

So, when you're thinking about purchasing your next car, check the APR, decide if you want long or short term options, and take time to think. Finally, remember that Motor Market is here for you if you need advice on which car financing option to take, so give us a call on 01384 411119 to find a solution today.

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