Car finance has to turn into a large business. A huge variety of new and used car buyers inside the UK are generating their automobile purchase on finance of some sort. It could be inside the type of a bank loan, finance in the dealership, leasing, credit card, the trusty ‘Bank of Mum & Dad’, or myriad other forms of finance, but relatively few people buy a car with their cash anymore.
A generation ago, a private car buyer with, say, £8,000 cash to spend would usually have bought a car up to the value of £8,000. Today, that same £8,000 is more likely to be utilized as a deposit on a car which could be worth tens of thousands, followed by up to five years of monthly payments.
For clarification, this author is neither pro- nor anti-finance when buying a car. What you must be wary of, however, are the full implications of financing a car – not just when you buy the car, but over the full term of the finance and even afterward. The industry is heavily regulated inside the UK, but a regulator can’t make you read documents carefully or force you to make prudent car finance decisions.
Financing through the dealership
For many people, financing the car through the dealership where you are buying the car is very convenient. There are also often national offers and programs which can make financing the car through the dealer an attractive option.
This blog will focus on the two main types of car finance offered by car dealers for private car buyers: the Hire Obtain (HP) and the Personal Contract Acquire (PCP), with a brief mention of a third, the Lease Buy (LP). Leasing contracts will be discussed in another blog coming soon.