Finance or Leasing?

Finance or Leasing?
A simple guide to help find the right deal for you. By Sharon Kirk, Sales Operations & Compliance Director. 

What should I look for when financing a car? 

Car manufacturers often give finance schemes of their own – from Solutions and Dimensions to i-Deal and Aspirations. It can be confusing distinguishing between PCP, PCH, Hire Purchase and other types of plan at the dealership.

Here at Motorfinity, we listen to what it is you are looking for. We then work out the best deal for you with our multiple lenders, taking a responsibility that the monthly payments are inline or lower that what you are looking at. We can also look at shorter terms than you were initially looking at.

You can also fund your new car yourself with either a cash purchase, or a bank loan. We do not mind. We want to ensure that you have the best deal with the best customer service and recommend us to your friends and colleagues.

What is car leasing?

By leasing a car, you are essentially renting it for a long period, typically two to four years but some lease providers offer shorter and longer terms. You may see the term PCH. This stands for Personal Contract Hire and is simply another name for leasing.

You do pay a deposit: You can opt to make an initial payment equivalent to a 1,3, 6, 9- or 12-month rental. The higher the initial payment, the lower your monthly payments become. You are responsible for servicing, MOT, and insurance. The road fund licence is done by the lease company for you and is included in the monthly payments.

When the lease ends, the car goes back to the provider. At no point in the process do you own the car and there is not a ‘balloon payment’ that allows you to buy the car outright at the end of the lease, as is the case with PCP deals.

Throughout the lease, the car remains the property of the provider. However, as the car’s primary user your name will appear on the registration document (V5C). When the lease ends, the car is returned to the provider. It is an easy cheaper way to fund a new car.

What is PCP finance?

PCP, (Personal Contract Purchase), is where you are spreading the price of the car across a deposit, monthly payments, and an optional final payment. This final payment is known as a balloon payment or GFV, (Guaranteed Future Value). A PCP finance agreement lasts between two and four years.

Unlike with a bank loan, where you pay for the whole cost of the car over the contract, with PCP you just pay for the depreciation - the difference between the initial price and what the car is expected to be worth when you hand it back.

This means that you can run a brand-new car for an affordable monthly payment with the option to simply hand the keys back with nothing left to pay at the end of the contract, provided that the car is in good condition, below the agreed mileage limit on the PCP agreement, and has been serviced in accordance with the manufacturer’s guidelines.

However, if you want to buy the car outright, you can simply make the optional final payment shown on the agreement and then it is yours. You can also decide to trade the car in for a new one, taking advantage of any equity, should the car be worth more than the optional final payment needed to buy it. You can then use this as part of the deposit on a new model car. The car will be registered to you, and you will have the V5. However, remember that you do not own the vehicle unless you make that optional final payment.