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Whether to buy a new car or lease one can often be a difficult decision. It’s difficult to know which offers the best investment, and which is best suited to your individual circumstances. We discuss the differences between them.

Should you lease or buy your next car? PCH vs PCP

Whether to buy a new car or lease one can often be a tough decision. It’s difficult to know which offers the best investment, and which is best suited to your individual circumstances. We discuss the differences between them.

Often called Personal Contract Hire (PCH), or Business Contract Hire (BCH), leasing is essentially a long term loan of a new vehicle. It can be a great way to get the keys to a brand new luxury motor, with a relatively small upfront cost. The main difference between leasing and buying new, however, is you never actually own the vehicle, and at the end of the contact, you simply hand the keys back to the leasing company.

Leasing contracts tend to come for any term between 2 and 5 years. You normally pay an initial deposit (usually 3-6 months equivalent monthly payments) then a fixed monthly payment for the remainder of the term. 

Yes. As part of the leasing agreement you will have to agree to a set maximum number of annual miles. If you go over this agreed limit then there will be a fee to pay per mile extra you have driven. As a general rule, it’s better to overestimate the number of miles at the beginning than pay penalty fees at the end. The costs for excess mileage fees can vary dramatically across lenders, and could end up being very expensive.

Warranty, Servicing, MOT and Vehicle Excise Duty

Most lease companies will offer a warranty and servicing package. As the vehicle will most likely be brand new, you will automatically get the manufacturer’s warranty included (often around 3 years). If you’re leasing for longer than this, say 4 or 5 years for example, you may be offered an extended warranted option to keep your vehicle covered for the duration of the contract.

All vehicles require regular servicing to keep them in good working order, and your lease contract will almost definitely require the vehicle to have all of these done, and on time. That said, the cost of the servicing is not always included in the contract, so it’s worth enquiring how much extra it will cost to have the service package on top of the vehicle deal as well. It’s also worth contacting the vehicle manufacturer directly separately, it is often cheaper to take out a separate service package with them as opposed to just going with the leasing company. They know people will pay for the convenience of a single monthly bill with them.

For more information on why you should keep your vehicle serviced regularly, see our article Why you should get your vehicle serviced regularly.

As standard, there are rarely any MOTs included with a lease. New vehicles are exempt from having to pass an MOT for their first 3 years, but thereafter you’ll need to have one every year. Check with your lease company whether you have any MOTs included if your contract is for longer than 3 years. (For more information on what an MOT is, and what is checked, see our article What is an MOT, what is checked and when is it due?)

One benefit of leasing is that Vehicle Excise Duty (vehicle tax) will be included in the package. Whereas if you were to buy the vehicle, whether cash or finance, it would be your responsibility as the buyer to fork out for this.

Regardless of how you obtain your next vehicle, you'll have a number of ongoing running costs that you'll need to factor into your budget. Be sure to add the cost of these onto any monthly payment you are quoted when calculating the total cost of having the vehicle.

Wear and tear items such as tyres and brakes won’t be included in any finance or leasing agreement, so factor in the cost of having to place these periodically.

You’ll  have to provide your own insurance for the vehicle (fully comprehensive, of course, if financing or leasing), to ensure you are legally allowed to drive the vehicle and are covered in the event of an accident. Make sure you get a quote online before signing any contracts. Insurance on new cars can be quite a lot more than on used cars.

For more information on whether to buy new or used, see our article Used car vs new car - Which should you buy?.

It’s the bain of all our lives, but regardless of buying or leasing, you’ll need to budget for regular trips to the petrol station. Of course, if you’re considering an electric vehicle, this could be a lot less expensive.

For more information on whether to consider buying an electric vehicle, see our article Is it time to buy an electric vehicle?, or for help choosing which fuel type to opt for, see Our guide to different types of fuel - Petrol vs Diesel.

As you do not own the vehicle when leasing, you will be responsible for any repairs that are needed before handing the vehicle back. Acceptable wear and tear is usually allowed, but attempt to hand the keys back with a huge scratch down the side of the car, or a rip in the backseats upholstery, then you’ll be charged a hefty repair cost to put things right.

Not when leasing, and if financing, not until the loan is repaid in full. As the vehicle is always owned by the lender then you will not be authorised to modify the car in any way. When leasing or taking out PCP, it must be handed back in exactly the same state as it was received. Ie, no additional spoilers or engine remaps in sight.

For more information on what a remap is, see our article What is engine remapping and is it worth it?.

What sort of vehicles are available on lease?

You can lease pretty much any type of new vehicle. However, most people tend to opt for a lease in order to obtain a higher-end model than they otherwise could afford. For this reason you tend to find more options available for the more expensive vehicles. Always check the depreciation rate (the amount of value a vehicle loses over time) for the type of vehicle you are after, and in particular the exact make/model you are looking for. The cost of the lease tends to correlate with how much value the car will lose over the lifetime of the lease. Lease companies will favour cars with lower depreciation, so it might be worth investigating buying instead of leasing if the car you are after tends to hold its value better than others. That way, you are the one who benefits when you come to sell the vehicle on.

Leasing is often used by businesses for their fleet of vehicles, or for company cars. Therefore, many lease companies advertise their deals excluding VAT. If you’re considering leasing and it’s not as a business expense, then make sure you budget for the full cost including VAT. In some cases this may mean adding 20% to the advertised price.

Both leasing and car financing will involve a credit check, which will be visible on your record. However, they may not always run a full affordability check, so always make sure you have budgeted for the monthly payments. Once approved though, making regular on-time payments can have a positive effect on your credit score, which may help you get approved for finance in the future.

Always make sure at the end of the lease you have a plan for obtaining your next vehicle. Handing the keys back means you’ll have nothing to show for the payments you’ve been making each month, and so you’ll need to know whether you wish to lease another vehicle, or buy another one when your current car goes back.

This depends on so many different factors. The closest alternative to leasing is to buy a car using Personal Contract Plan (PCP).

For more information on the different types of finance, see our article PCP vs HP vs Loan vs Cash vs Lease - What's the best way to buy a car?.

Much like leasing, with PCP, you have an initial monthly payment and then a fixed number of monthly payments. The main difference is that with PCP you have the option to pay a pre-agreed final balloon payment to buy the vehicle from the finance company. This is often called the Guaranteed Minimum Future Value (GMFV). Alternatively, you can simply hand the vehicle back. 80% of PCP contracts end with the car being returned, despite the option to purchase at the end, so it’s worth comparing total amount payable PCP vs PCH to see which works out the cheapest over the long term.

Regardless though, in terms of investment, leasing is usually the worst option available. This is because at the end of the term you are right back where you started; with no vehicle, but far less cash than before.

What if I can’t make the monthly payments?

If you really can’t make the payments, and need to hand the car back, speak to your finance company immediately as you may still be liable for the full cost of the lease. With PCH, as long as you have paid (or can pay) half the total cost then you are legally allowed to return the car. There may be early return charges though, so bear this in mind.

Alternately, they may be able to offer you an extension on the loan, which would effectively reduce your monthly payments.

With leasing, if you fail to make the payments, then the finance company can repossess the car without a court order.

With PCP, the lender can still repossess the car without a court order, but once a third is paid off, then they would require a court order to do so.

With either option though, always make sure you budget for the monthly payments for the lifetime of the loan.

On the surface, yes. When purchasing a vehicle you won’t be limited on mileage (unless taking out finance - see our article PCP vs HP vs Loan vs Cash vs Lease - What's the best way to buy a car? for more information), you don’t have to worry about keeping it in any sort of condition to return it, and you won’t have an approaching deadline for when you have to hand the keys back.

However, when buying a new car you will have to pay for the full amount in cash (unless financing), which can be a huge lump sum. Leasing will give you the option of obtaining a far more expensive car for far less initial outlay.

Also, when buying the car yourself, you will be subjected to the depreciation of that car. New cars, especially, have monumentally high levels of depreciation; with 20% being wiped off the value of the vehicle as soon as you take ownership, and most vehicles being worth roughly 50% of their sticker price after 3 years. Therefore, when calculating whether leasing or buying new is a better deal, always check how much a new car might be worth in 3 years' time (or however long you plan to have the vehicle), and calculate the depreciation cost. This will give you the total cost of ownership vs leasing.

When leasing, or financing, a vehicle, you will be bound by a strict timeframe; usually 2 to 5 years. At which point you may have to hand the keys back or pay a final balloon payment to keep the vehicle. Buying the vehicle outright means you choose how long you wish to have it for, and when you want to sell it on to make your next purchase. This is far more flexible. For example, you could decide to upgrade in 18 months if your personal or family situation changes, or on the flip side you could keep the car for 10 or more years if it still fits the bill. Buying a car will always give you the final say. There’s also the peace of mind factor that the car is yours, and no-one is coming to take it away. Sometimes that’s worth a lot in itself.

Before siging up to any new deal, whether buying or leasing, always check you have calculated and budgeted for the total cost of ownership. These 6 points are the main costs to consider.

Depreciation (when comparing leasing against buying)

Running costs. Fuel, insurance, tyres, brakes.

Leasing can be a very convenient way to get a brand spanking new smart set of vehicles, with limited hassle or liability when the vehicle requires maintenance. That said, it can often be the most expensive way to get behind the wheel of a car, so always be sure to budget for the total cost of ownership vs buying when deciding how best to go about getting your next car.

Lease4Less are one of the UK's biggest leasing companies and have some fantastic deals available. They have years of experience and so we would recommend checking them out before deciding which option is right for you.

Should you lease or buy your next car? - PCH vs PCP

Buying your next car can be a stressful experience. Knowing how much to spend, which make and model will be best, where to look, how to haggle - all these things can quickly take the fun out of getting your next car. Here are our top tips to help you on your journey.

Buying your next car can be a stressful experience. Knowing how much to spend, which make and model will be best, where to look, how to haggle - all these things can quickly take the fun out of getting your next car.

Here are our top tips to help you on your journey.

Before we start, it's important to know whether you'd like a new or used car. Check out our article Used car vs new car - Which should you buy? for the pros and cons for each.

If you've decided on buying a used car, then read on...

The first and most important thing to know is how much money you have. When looking for your next car you can very quickly start looking at some that are more expensive than what you can actually afford - especially once dealerships start teasing you with their finance packages. So rule number one, decide on a budget and stick to it. If you’ve not already, check out our article PCP vs HP vs Loan vs Cash vs Lease - What's the best way to buy a car? to see whether cash or finance - such as PCP or Hire Purchase - will be your preferred way to pay for the vehicle.

For many people the first place they start looking for a car will be the local dealership for their favourite manufacturer. The problem with this is you’re immediately cutting out 95% of your options by excluding other brands. The sales person will, of course, convince you that only their cars are suitable, but in reality there are so many good cars out there it’s best not to narrow it down to one make at this point.

Instead, decide on a “type” of car. Think about what the car will be used for, how many passengers you may be carrying, and what sort of boot space you may require. This will help you work out if you need a hatchback, estate, saloon, 4x4 or sports car for example. If you would like more information on the types of drivetrain available, ie front-wheel drive, rear-wheel drive and all-wheel-drive, check out our article Rear-wheel drive vs Front-wheel drive vs All-wheel drive - Which is best?.

Once you have an idea of the type of car you are after - you can very quickly see what different cars are out there online. Online car sites such as AutoTrader and Cinch will greatly aid you in this process. Simply put in your desired price range, maximum age and mileage you’d consider and select which types of car you are considering and click Search. Note, we still don’t search by a specific make yet!

Next you’ll be presented by an endless list of cars, many of which you will most likely not have even considered beforehand.

Make a shortlist of your favourite 4 or 5 of the cars in the list. For example, if you’re after a medium-sized family saloon the list may look something like:

Once you have your list then it’s time to hit google and youtube. This, in my opinion, is the single most important step on the list. Every time I am in the market for my next car, I start my search about 6 months before I’m ready to buy. It’s important to read as many online reviews for each make and model of car you are considering as possible. And don’t just read, watch reviews online too. YouTube is a great resource for this. Combining these approaches will help you to build up a picture of which make and model will be best suited to your needs.

Now this is the fun part. Always, always, test drive before you commit to any particular car. Once you’ve done your research you’ll most likely have a good idea which cars you think will be right for you. Simply ring up your local manufacturer dealership and say you’d like to book a test drive. Test drives are always free, come with no obligation and will give you a first-hand experience of what the car is actually like to drive. You’ll have to listen to the sales person’s spiel the whole time, just be sure to filter out the adjectives - listen to the facts and remember all the cons you will have read online or heard on youtube. The sales person won’t mention any of those…

Repeat the above process for each car you are considering. Then compare.

After your test drives, the last thing you want to do is enquire what cars they have available for you. This will limit your options to only the cars that they have. Instead, go back to Autotrader or Cinch and search for the make/model/age/mileage you have decided upon. All the cars for sale in the country (or ones within your distance filter) will be on there. As a general rule I leave the distance filter on National - or at least 200+ miles. In my opinion it’s worth a one-off long drive to pick up the right car. After all, you’ll most likely be spending a great deal of money on it and owning it for a long time. Don’t just buy the closest one. Some may even have nationwide delivery anyway!

Now you’ll be presented with a much more concise list of cars that meet the exact criteria you want. This is where things get really exciting as any one of these cars could be the one you’ll be driving away with. It’s important not to get too carried away though, we need to look at each car with a fine-tooth comb to make sure it absolutely right. So onto the next step.

The first thing we need to do is exclude any cars that do not meet a certain criteria we need. The first major filter to add is whether you want to buy private or trade. Unless you’re spending less than maybe a couple of thousand of pounds, I’d recommend always buying trade. There’s less to worry about and you’ll have more recourse if there’s an issue. Private car sales will be cheaper though.

Any cars with Category C damage or no service history should be immediately excluded. Do you really want a car that’s been in an accident or hasn’t been looked after? I tend to look for Full Service History (FSH) as a minimum, and also check if there are any imminent services required on the vehicle; as these could add an addition £500 or more to the cost of the car.

Most dealerships will give you a full MOT with the vehicle, but this is also worth checking upon enquiry. If not, then move onto the next car.

Not all dealerships are equal. Each car that is advertised for sale will say who the dealership is. Is it a manufacturer or independent dealership? With a manufacturer dealership you have better protection than via an independent one. So always read the online reviews. TrustPilot or Google Reviews are great resources for this. If previous customers have been dealt a bad hand in the past, no doubt they’ll have left comments on either of those two platforms. Also check their website. Do they look professional? Do they even have a showroom? All these questions will help you to decide if the dealership is genuine, trustworthy, or just a single person masquerading as something they’re not.

If the dealership looks good, the next thing I like to do is ring them up and have a chat about the car. Here is a list of questions I like to ask:

When was the car registered?
It’s always good to know the exact registration date, rather than just which year. This will tell you exactly how old the car is.

How long have you had the car?
The longer the dealership has had the car, the more eager they will be to sell. If they’ve literally just picked it up they may be less likely to come down as much on price. On the flip side, if they’ve had it for a while, they might just give you a deal to get it off their hands.

Do you have the V5C and two sets of keys?
All vehicles will have a V5C document, also known as the log book or registration document. This states the make/model and keeper of the vehicle. Vehicles are usually sold with two sets of keys. If there’s only one, ask why? One of the previous owners may still have it!

What was the reason for the previous owner’s sale?
Always interesting to know. A lot of the time they may not know, but they may come back with something insightful.

How many previous owners has the car had?
If the car’s had a lot of owners it may not have been treated well, and may have underlying issues prompting it to be sold on quickly. Similar, if it’s only had one or two previous owners who kept it for a long time, it is more likely to have been cared for.

Any dents, scratches, signs of damage?
Good dealers will always be honest with you and tell you about any minor damage. A lot of the time they may say something along the lines of “it has a minor scratch on the driver’s side door, but this will be repaired upon sale.” For any agreements such as this make sure you get them in writing. If they say the car is floorless, don’t just take their word for it. When you go visit the car, check it top to bottom.

How much tread is left on the tyres?
This is always a good one. If all the tyres are really low you could end up spending hundreds of pounds within a few weeks getting them all replaced. A lot of dealers will have a minimum-tread promise where all their cars come with a certain amount as standard, but this is always worth checking.

How much wear is on the brake pads?
Like above, you won’t want to be replacing these as soon as you’ve purchased the vehicle. Make sure there’s plenty of miles left on the brake pads. If not, request they get replaced as part of any deal you make,

Does the car have a new MOT?
Usually the dealer will give you a new 12 month MOT, but always check this. You can do an online MOT check for any vehicle now on the government website. You can see the vehicle’s previous MOT History. Take a look specifically at any advisories it may have had. Check with the dealer if the advisories have been done. This may be something you could use as a haggling tool later on.

Drive-away warranty
Without any warranty you are legally responsible for the vehicle as soon as you sign contracts. If the car dies on the way home there’s not much you can do and you’ll have to fork out for the repair bill yourself. Most dealerships will give you 3-6 months warranty (if there’s no manufacturer’s warranty left on the vehicle), but always check if this is the case. If not, then be very careful. Usually, I’d walk away.

Drive-away insurance
Some dealers offer you a free week drive-away insurance to get you on the road. Having said that, this has become much less common as they are quite expensive for the dealers. It’s worth asking, regardless.

Is the car ready for collection / delivery?
Sometimes dealerships will require a few days to get the car ready for collection, to repair any minor damages, valet and prepare the car. It’s worth checking this in advance. They may also offer a nationwide delivery service - sometimes free, so ask if this is an option. If they do, they’ll usually pick-up any part-exchange you may have also.

Do you take part-exchange?
The majority of dealerships will accept your current car as part-exchange, but some may not. If you need part-exchange as part of the deal, ask them for a quote and make sure you’re happy with it.

Can I book a test drive?
I’d never buy a car without test driving it first. If the dealership is fussy about letting you drive it, then walk away. They may be trying to hide something.

If you’re happy with all of the answers to the above, then move on to booking a test drive.

If you’re part-exchanging your current vehicle then you will most likely take it with you on the day of the test drive. Be sure to give it a full valet inside and out. If the the car looks in poor condition on the day, you’re less likely to get full price for it. Do some research, find out how much it should be worth. Apps such as Autotrader allow you to put in your car registration and mileage to see what it could be worth to sell privately or as part-exchange.

The dealer will most likely ask you what you think it’s worth, or how much you want for it. Show them you’ve done your research. Say something like, “for a car of this age, mileage and condition I’d like a minimum of X thousand pounds, if not i’d probably sell it privately.”. Be sure to add 10% on to whatever price you researched beforehand. The dealer will rarely offer you more than what you’re after, and will most likely knock you down. Also, they make huge mark-ups on part-exchanged vehicles, and if they think you are willing to sell it privately instead, may potentially offer you a bit extra to incentivise you take the easy option of part-exchanging with them. 

Yes, it’s time to go on another test drive. But this time you are test driving the actual vehicle you may be purchasing, so you need to pay extra-special attention. Here’s a handy check-list when you turn up at the dealership:

Check all the vehicle documents
The most important is the V5C as mentioned above. Make sure the make and model match the car, and also the Vehicle Identification Number (VIN) should match that in the lower corner of the windscreen.

Check for dents, scratches, blemishes
Before driving the car take a good look around it, top to bottom. Make sure you visit the car on a day where the sun is out and it is dry. Rain has a terrible habit of covering up shoddy paint work. If you find anything, make a note and bring them up later. 

Check the Tyre tread
1.6mm is the legal minimum, buying anything with less than 3mm tread means a replacement will be due soon.

Electrics
Make sure all the fundamental electrics work. Windows, radio, wipers and lights.

Glass
Check there are no chips or cracks in the glass. If there are these should be sorted before sale.

Upholstery
Check for wear and tear and the overall condition. Are there any rips? What does it smell like? If the car has had a smoker as a previous owner it can be hard to get rid of the smell.

Panel Gaps
Check if there are any unusually large gaps between the panels. If you find any it means the car may have been in a crash and repaired poorly.

Wheel accessories
Should the car come with a spare wheel? If so, is it there?

Once you’ve gone through all of the above checks, then open the bonnet and start the car. Even if you have no idea what you’re doing, or what you’re looking for, the sheer fact you’ve opened the bonnet and leaning in will give a message to the sales person you are taking this seriously and won’t be palmed off. 

On the drive, make sure the car drives as expected. The sales person will most likely talk a lot to you to take your attention away from the car and onto whatever it is they want you to hear. Don’t take any notice of them and focus on the car. Is it smooth? Are there any strange sounds or smells? If you notice any, bring them up on the spot. See how the sales person reacts. You should be able to tell if they knew about them beforehand.

If you’re happy with the car, the only thing left to do is agree a price. At this point, if you want a good deal for the car you need to be prepared to walk away. Don’t let excitement take over as it could cost you hundreds or even thousands of pounds. Remember, the sales person will have put a lot of time and effort into you as a customer up until now and they will want the sale as much as you want the car.

Firstly, if you’re part exchanging, treat the new car and your old one as two separate transactions. Don’t make the mistake I made once of getting a great deal on my part-exchange, driving away chuffed then realising id paid full price for the new car and so essentially I ended up getting ripped off.

The sales person will try to offer you a “good price” on your part-exchange by offsetting it against the new car. Ignore all of this and insist on two separate prices. One for the part-exchange, and one for the new car.

As a general rule, some discount is always factored into the price of a car at a dealership. You can usually go in with a first offer around 10% lower and gauge their reaction. This is unlikely to be accepted, but if you can aim to get 5% off, then you’ve not done too badly. Again, make sure any discount you get is independent to your part-exchange price if you get one. There is no point having one great deal, and one bad one. They cancel each other out.

The sales person may have incentives to sell a particular type of finance, such as PCP, and offer an additional discount if you take out the plan. Car finance has high levels of interest and any interest you pay will go above and beyond any extra discount you may be offered, so bear this in mind.

When you’re close to a deal, ask them if they’ll throw in a full tank of petrol. The chance of them turning down such a small gesture is unlikely, as they won’t want to jeopardise the deal, and you may just save yourself £50. Enough to buy a bottle of bubbly for when you get home to celebrate!

Finally, if you’re happy with the deal, then that’s it, the hard part is done. If something still doesn't seem right, or you need time to think it through, don’t be afraid to walk away. The dealer will most likely follow up with you in a few days. And if on the off chance someone else has snapped up the car in the meantime, don’t worry. There are always other cars.

The dealer will never advertise the tax due until the very end, and usually once a deal has been agreed. Tax rules have changed and can no longer be transferred with the vehicle to a new owner. So you’ll need to tax the car from scratch once you’ve bought it. The dealer will rarely ever cover the cost of this, so check the car’s tax bracket and add it into your budget. (If you’ve part-exchanged you’ll automatically receive a rebate for any unused months left on the tax.) 

Also be sure you have insurance to drive the vehicle when you collect it. With the exception of free drive-away insurance (as mentioned above) you’ll be responsible for making sure you are legally licenced and insured to drive the vehicle once you get the keys.

That’s pretty much it. These are the steps I follow every time I purchase a vehicle and they have saved me a lot of money over the years. If you’re anything like me and find purchasing a car very stressful - despite your love of cars - then hopefully this can help make things a little easier for you.

And when you get your new car, always keep it well maintained and serviced. You’ll be thankful in the long run.

How to buy a used car - What the dealers don't want you to know!

When choosing your next car there are so many factors to consider. And even once you’ve decided which car you want, you suddenly get presented with your next dilemma: how to finance it.

According to the Finance and Leasing Association, 88% of new private cars bought in 2017 were paid for with some form of finance.

There are six main ways you can go about obtaining your next car. Hire Purchase (HP), Personal Contract Purchase (PCP), Personal Loan, Credit Card, Lease, Cash

HP is a very simple way of paying for a vehicle. You pay an initial deposit - usually around 10% of the value of the vehicle. You divide the remainder by the number of months in your contract (ie 48 months), add some interest - usually around 6-7% Annual Percentage Rate (APR) - depending on the market) and there you have your monthly payment. Keep an eye open for 0% finance deals too, this could save you thousands in interest over the course of the loan.

You won’t need to give the car back at the end of the period, so there’s no worrying about mileage or condition either. You will end up paying a great deal more than if you’d bought in cash, simply because of the interest, so it’s worth checking out the total amount to be paid before signing up. Also note, that until the term of your contract is up, you will not own the vehicle. This means you won’t be able to modify or sell it on until the end of the contract either.

PCP seems to be a favourite among dealers at the moment. It’s sort of a halfway house between hire purchase and leasing. Because dealers love this option so much you often get offered £1,000 or more off the purchase to take them up on it. Don’t be fooled, though, whatever they’re offering you, you’ll be paying more than that in interest over the lifetime of the finance agreement.

You will pay an initial lump sum - usually around 20% or so of the value of the vehicle. You will then be given set monthly payments for a fixed period, ie 48 months. 

The main difference is that when your fixed term ends you don’t own the car. Instead you’ll be given two options:

A pre-agreed final payment to purchase the car at that point - often referred to as the Guaranteed Minimum Future Value (GMFV)

Simply hand the car back to the finance company

The reason the monthly payments are considerably lower than for hire purchase is because the total amount paid is offset by how much the car is worth at the end of the agreement. The loan amount is essentially the cost of car plus interest, minus the deposit and the GMFV.

Many people opt for PCP because of these low monthly payments and knowing the amount you’ll have to pay to buy the vehicle at the end of the contract upfront is helpful for budgeting.

Be mindful that you will have to adhere to pre-agreed terms such as a mileage per year and final condition of the car. Go over the mileage, or try to hand the car back in a poor condition and you’ll be charged additional fees.

If you buy the vehicle at the end, then the total amount paid will be roughly similar to that of a hire purchase plan.

Many banks offer personal loans for things such as home improvements and new cars. This is one option to consider as the money is rarely secured against your property or vehicle and tends to come with much lower interest rates than car finance.

Because the loan is also not secured against the vehicle you’ll need to have a good credit rating to get a decent interest rate. One of the reasons car finance such as PCP and HP has such high interest rates is because of their leniency for poorer credit ratings and higher frequency of payment defaults.

Essentially, if you qualify for a personal loan, it might be worth considering over car finance.

Once received you can simply buy the car outright. Of course, you’ll still need to manage and keep up with the monthly loan payments

One huge plus side to both personal loans and car finance is that they can actually have a positive effect on your credit rating - as long as you keep up the payments. Apply for too many loans though and this’ll show up too and will have a negative effect.

Depending on your credit limit, you may be able to pay for the vehicle, either in full or in part, on a credit card.

If you have 0% on purchases for a fixed term this could be a great way to finance your vehicle without paying any interest. Just be sure to pay the full balance off before the interest free period ends. Otherwise you’ll end up paying huge levels of interest. Alternatively you may be able to transfer the balance to another 0% interest on purchases credit card, but this usually incurs a balance transfer fee.

One major benefit of buying on a credit card is that even if you put just a small amount on it, then you’ll be covered by Section 75 of the consumer credit act. This means that if something goes wrong with the vehicle or the purchase then your credit card company may be able to help.

Be aware though that some dealerships won’t accept credit cards due to the high transaction fees, which can no longer be passed onto the consumer.

With leasing you basically rent the car for a set period; usually 3 - 4 years. You will pay an initial deposit and then a set amount every month, like hire purchase.

One of the main advantages to leasing is that the car is always new, and is usually fully covered by warranty for the duration of the lease. Any issues or problems and you can rest assured it’s the problem of the lease company. Some packages also include servicing and vehicle tax as well. So shop around for the best deals.

The major difference between leasing and the other options is that you do not ever actually own the vehicle and at the end of the term you’ll have to hand it back. Like PCP, you’ll also have to abide by a pre-agreed number of annual miles, and the vehicle will have to be in good condition upon return.

If you have the capital available then buying a car outright with cash is a very good option. You’ll pay absolutely no interest on the price of the car, and you will have no monthly payments to worry about either.

You will need to have the full amount available in your account to complete the purchase. If your money is tied up in fixed-term savings accounts there may be a fee for withdrawing early.

Some people also have their money in Stocks and Shares ISAs so it may take a few days to a few weeks for your broker to sell your investments and return your cash to you. You’ll also stop earning any dividend payments your holdings may have been paying, and there will be no further potential capital gain on your investment.

It’s also worth noting that you have an ISA limit each year (currently £20,000 in 2019/20 tax year) and once you hit that limit you cannot pay into it until the next tax year. Therefore, think carefully before withdrawing from your ISA to pay for a car.

In summary, there's no right or wrong when it comes to financing your next vehicle, it just depends on your budget and financial situation at the time. Whichever option is best for you, don’t let the dealer persuade you. They’ll often have ulterior motives and will be pushing you towards the option that gets them the most commission.

And finally, haggle! Regardless of the method of payment, when buying a vehicle it’s always important to try to get as much off the price as possible. It’s factored into the sale price.

There’s always room for manoeuvre and the dealer would rather sacrifice a percent here or there to stop you walking out the doors and into the dealership across the road.

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Tag: pcp

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