Up and down the United Kingdom, more motorists than ever before are turning to specialist car finance lenders. From hire-purchase agreements to bad credit car finance to traditional personal loans, there’s never been a broader market for vehicle finance.
But what exactly happens at the end of a car finance term?
The answer depends entirely on the type of car finance in question. Some of which are significantly simpler than others.
Personal loans
For example, using a personal loan to finance a vehicle purchase means taking ownership of the car the moment you buy it. The car is your legal property and your sole obligation is to make the required monthly repayments to your lender. When the loan term comes to an end, it comes to an end … and that’s that.
One of the biggest benefits of personal loans for financing vehicle purchases is the freedom to do whatever you want with your car at any time. As it’s your property, you’re free to sell it, hire it out, modify it as you see fit.
Leasing
Leasing can be a convenient and affordable way to drive a quality car at an affordable price. As you’re technically only hiring the vehicle, you don’t have to worry about things like repairs, servicing, depreciation and so on. You pay the leasing company an agreed monthly payment for the duration of the term, after which the car is handed back to its rightful owner.
Monthly payments on a leasing deal can be comparatively low, as the customer never gains ownership of the vehicle. There are rare instances where a leasing deal includes the option to buy the car at the end of the term, though this is typically not an option.
Hire purchase
Hire purchase agreements work a little like personal loans, though with one key difference. The cost of the car is spread over several months or years, at an agreed rate of interest and other standard admin fees. The difference being that throughout the course of the term, the vehicle remains the property of the service provider.
It’s only when the final payment has been made that ownership of the car is transferred to the customer. At which point, they can do with it as they please. As the customer is not the rightful owner of the vehicle until this point, they are forbidden from selling the car until it becomes their property. There may also be heavy restrictions on modifications, upgrades and so on.
Personal contract purchase (PCP)
Last but not least, PCP deals are often viewed as complicated, though are surprisingly simple and relatively flexible. With a PCP deal, everything plays out in a very similar way to a hire purchase agreement. You pay the deposit, gain access to the vehicle and pay for it over a series of monthly instalments.
However, PCP customers have three options to choose from at the end of the term:
- Purchase the Vehicle. If they wish to become the owner of the vehicle, they can make what’s known as a ‘balloon payment’ and take ownership accordingly.
- Upgrade the Vehicle. If preferred, the customer can enter into a new PCP deal with a newer car. The same rules apply as at the start of the original term.
- Hand Back the Vehicle. Alternatively, they could simply choose to hand back the vehicle and walk away. No additional fees or repayment obligations, but also no vehicle ownership.
The benefit of a PCP deal is that the monthly repayments are often comparatively low and there is always the option of taking ownership of the vehicle at the end of the term.
Making the Right Choice …
Realistically, it’s misleading to label any of the above car finance solutions ‘better’ or ‘worse’ than any other. It all comes down to your personal preferences, your budget and your long-term objectives.
Whichever way you decide to go, be sure to take your business to an independent broker and compare as many deals as possible from specialist car finance lenders across the UK.
Article by iConquer
