If you’re considering buying a new car one of the most important decisions you will make is how you will finance your purchase. There are now a number of innovative and cheap car leasing and personal contract hire schemes available and these car lease deals are becoming ever more popular with new car buyers.
New figures have revealed that more and more consumers are buying new cars using leasing arrangements. We look at this new data and then tell you everything you need to know about three of the most common types of new car finance.
Over 127,000 cars bought on finance in March 2013
New figures from the Finance & Leasing Association (FLA) show that there has been another double digit increase in the number of new cars bought on finance by consumers through dealerships.
In the twelve months to March 2013, the number of cars financed this way increased by 27 per cent, and by 22 per cent in the first quarter of this year. Overall, 127,084 cars were bought on finance through dealerships in March, with the value of all the advances reaching almost £1.9 million.
Commenting on the figures, Paul Harrison, head of motor finance at the FLA, said: “Used car finance volumes in March were relatively static with the new number plate helping to drive strong growth in private new car finance sales. Our figures again highlight how affordable finance deals are helping to bring people into car showrooms.
“Secured lending – such as hire purchase and personal contract purchase agreements – can often be provided on more attractive terms, as the risk is reduced for the lender and this is reflected in the competitive deals available to customers.”
Car leasing deals can offer a cheap way to drive your new car. Next, we outline three of the main types of finance arrangement.
3 ways to finance the purchase of your new car
1. Hire purchase
A hire purchase agreement requires you to pay a deposit followed by monthly payments over a fixed period. Your monthly payments are based on the price of the car, the deposit you put down and the number of payments you want to make.
When the full cost of the car has been paid, you take ownership of the vehicle.
One of the disadvantages of hire purchase is that your monthly payments will normally be higher than other forms of finance. However, you will own the car outright when all your payments have been made.
2. Car leasing
Under a standard car leasing contract you pay a deposit up front before paying a fixed monthly sum for the duration of the lease. Most leases are between two and five years long and at the end of the lease you can simply return the car to the leasing company.
You don’t have to sell the vehicle at the end of the lease period and you can often include a maintenance contract to cover repairs to the car during the lease period.
3. Personal contract hire
Personal contract hire is a car leasing agreement where your fixed monthly payments are calculated based on the difference between what you pay for the car and the resale value at the end of the agreement. This is calculated based on the expected mileage during your ownership and the length of the agreement.
The main advantages of a personal contract hire agreement are that you will generally need a smaller deposit and your monthly repayments will generally be lower. And, at the end of the car lease agreement, you simply hand the vehicle back.
Personal contract hire can be useful if you are looking to drive a new car every 2-3 years and you want to fix your payments.
Photo Credit: Flickr/Matthew Anderson