Finance Explained

Hire Purchase (HP)

Hire Purchase is a method of obtaining goods e.g. a vehicle, pay for the use of the vehicle over a pre- agreed period and at the end of that period, once an Option to Purchase Fee has been paid, the goods become your property.

Hire Purchase enables you to simply choose how much deposit you wish to pay upfront, including any part exchange and the period in which you wish to repay the balance, typically up to 5 years.

The deposit is paid on delivery of your new vehicle, leaving the balance plus interest paid over the agreed period in equal monthly instalments. At the end of the agreement, subject to a nominal option to purchase fee, you take outright ownership of the vehicle.

Interest is calculated at the start and is added to the amount that you wish to fund, therefore it is fixed for the length of the agreement. This means that the amount you pay is unaffected by any future changes in interest rates, allowing you confidence that your payments will not alter.

BENEFITS:

Fixed regular payments
You are the ‘registered keeper’ of the vehicle with ownership of the vehicle transferred to you at the end of the agreement once the option to purchase fee has been paid
Variable deposits and periods available, usually in monthly increments from 12 to 60
Once you have paid a half of the total amount payable you are able to exercise your legal rights and voluntary terminate the finance agreement by handing the vehicle back to the finance company (maybe subject to fair wear and tear)
Satisfactory quality rights under the Consumer Credit Act are provided, meaning the credit provider may be liable for putting things right providing the cash price was less than £30,000
The ability to repay additional amounts in to agreement and have the interest recalculated, meaning that you could either lower your monthly repayment amount of shorten the term

CONSIDERATIONS:

A ‘Fair Wear & Tear’ clause may apply in the event of Voluntary Termination ?You do not own the vehicle outright until the final payment is made
Your vehicle is at risk of repossession if you do not maintain the contractual repayments ?You must maintain fully comprehensive insurance throughout the term of the agreement ?You must not sub lease or rent the vehicle to a third party
Charges may apply for late payments or to alter the repayment date (these are detailed in the SECCI)
Any outstanding finance must be settled if the goods are sold

Conditional Sale Agreement

A Conditional Sale Agreement is a method of obtaining goods e.g. a vehicle, pay for the use of the vehicle over a pre- agreed period and at the end of that period, the goods become your property. Click here to find out more about Conditional Sale Agreements including important things you must consider before taking out an agreement.

A Conditional Sale agreement is the same as Hire Purchase, except that you will automatically own the car once the finance has been repaid in full without the requirement to pay an additional fee. If you wish to sell the vehicle you must repay the outstanding finance balance in full.

The deposit is paid on delivery of your new vehicle, leaving the balance plus interest paid over the agreed period in equal monthly instalments. At the end of the agreement, you take outright ownership of the vehicle.

BENEFITS:

Fixed regular payments
You are the ‘registered keeper’ of the vehicle with ownership of the vehicle transferred to you at the end of the agreement
Variable deposits and periods available, usually in monthly increments for 12 to 60
Once you have paid a half of the total amount payable you are able to exercise your legal rights and voluntary terminate the finance agreement by handing the vehicle back to the finance company (maybe subject to fair wear and tear)
Satisfactory quality rights under the Consumer Credit Act are provided, meaning the credit provider may be liable for putting things right providing the cash price was less than £30,000
The ability to repay additional amounts in to agreement and have the interest recalculated, meaning that you could either lower your monthly repayment amount of shorten the term

CONSIDERATIONS:

A ‘Fair Wear & Tear’ clause may apply in the event of Voluntary Termination ?You do not own the vehicle outright until the final payment is made
Your vehicle is at risk of repossession if you do not maintain the contractual repayments ?You must maintain fully comprehensive insurance throughout the term of the agreement ?You must not sub lease or rent the vehicle to a third party
Charges may apply for late payments or to alter the repayment date (these are detailed in the SECCI)
Any outstanding finance must be settled if the goods are sold

Personal Contract Purchase (PCP)

A Personal Contract Purchase (PCP) is a method of obtaining goods e.g. a vehicle through a pre -agreed fixed term finance agreement with part of the cost deferred until the end of the agreement. This may give the benefit of lower monthly repayments or a shorter period of repayment. Once all of the repayments, including the deferred payment and any fees are paid, the goods become your property. Click here to find out more about a Personal Contract Purchase including important things you must consider before taking out an agreement like what happens if you exceed your agreed mileage allowance.

A PCP is more suited for those that wish to enjoy the benefits of upgrading their vehicle every two or three years. A Personal Contract Purchase is a variation of a hire purchase agreement which offers monthly payments that are lower than some traditional finance schemes by offsetting a larger repayment to the end of the agreement.

Instead of purchasing the vehicle over equal monthly instalments an Optional Final Payment, sometimes called Guaranteed Minimum Future Value, is deferred until the end of the term. Meaning that you are paying the difference between the vehicles sale value and its minimum worth at the end of the period. The final payment is calculated based upon your driving requirements and annual mileage. Exceeding the agreed annual mileage will result in a pence per mile charge, as the higher the mileage the less the vehicle is worth.

Your repayments are based upon the price of your vehicle less any deposit and the Optional Final Payment, plus interest charges and any fees.

It is important to note that due to market conditions your vehicle may not be worth more than the Guaranteed Minimum Future Value at the end of the agreement, thus affecting the deposit available to purchase you next vehicle and subsequent monthly repayments. Therefore, it is imperative that you ensure that you accurately predict your mileage over the term, as any additional mileage is subject to an excess mileage charge.

Your options at the end of the agreement;

Renew – you can part exchange your vehicle at a dealership and start over again. If the vehicle is worth more than the Final Optional Payment, you can use the difference as a deposit
Retain Ownership – You may prefer to keep the vehicle, to do this you are required to pay the Optional Final Payment in full. Some finance providers will allow this value to be refinanced at the prevailing interest rate.
Return – If your needs or requirements have changed you can hand the car back to the dealer with nothing more to pay (subject to mileage and condition. Excess mileage charges may apply)

BENEFITS:

Fixed regular payments
You have the option of ownership of the vehicle at the end of the agreement ?Variable deposits and periods available, usually between 2 and 3 years
Once you have paid a half of the total amount payable you are able to exercise your legal rights and voluntary terminate the finance agreement by handing the vehicle back to the finance company (maybe subject to fair wear and tear)