HP vs PCP – Know your options in finance
The choice of whether or not to buy a car outright in cash is for many people a simple one; as the majority of people don’t have sufficient levels of cash sat in bank accounts… read more...
The choice of whether or not to buy a car outright in cash is for many people a simple one; as the majority of people don’t have sufficient levels of cash sat in bank accounts ready to buy their new pride and joy! The statistics very much show this, as in 2019 a whopping 91% of new cars purchased were done so through use of car-finance products.
This means that just 9% of new cars purchased were done so outright!
We can see from our data however that the story in the used market is often very different, although the used market through retailers tends to be more in line with those headline figures.
So considering the markets, UK consumers buying habits when it comes to purchasing vehicles and the general financial healthiness of those consumers; it is fair to say that there are various reasons why you might take finance, rather than just not being able to afford the full cost upfront.
When discussing with consumers, one of the major reasons often cited for considering finance is simply good financial management. In other words, just because someone has the available funds to put down a deposit of 75% of the value of the car they wish to purchase, does not mean that to do so is the most sound financial decision. Many people – particularly now during times of crisis – are more mindful than ever that having cash reserves to draw on in case of emergency is always a good thing, and often financing more than is technically required is a good way of doing so.
A further reason relating to financial management may be that the rates offered are better than they would receive elsewhere on other types of borrowing. Personal finances are for many people a large scale juggling act; so it’s always important to borrow where it is most financially beneficial to do so – and these days rates for high credit scorers are often extremely attractive.
Further to the above, car finance lenders reputations for being reliable sources of borrowing have only improved in recent years. While mistrust of banks still abounds throughout the UK, our partners at Oodle Finance have seen a sharp increase in repeat customers – and this opinion has been mirrored by other players in the UK car finance market.
Since customer opinion and trust is the #1 priority for many large finance providers, as an industry it seems they must be doing something right!
Other reasons to pick a finance house over a personal loan etc from a more traditional lender? Consumers have cited many, but the most chosen were:
Dealers are often prepared to negotiate on price, provide discounts on extra services or include other benefits for taking finance.
Whether this is worthwhile to you depends on a number of factors that are personal to your situation, but it is always worth asking the question to see what your dealer can do for you!
The benefit to the dealer is the building of a relationship with their finance partners, so they are often willing to offer benefits to their valued customers for taking finance options.
Flexibility is valued in almost everything, and in financial matters flexibility can be priceless. When talking about car finance, flexibility can come in the form of the ability to make over-payments, repay your entire outstanding amount early, or even take payment holidays if required. Basically just because you haven’t spent all of the cash in your bank account to purchase your car outright on day 1, does not mean that a year later you could receive an inheritance and choose to clear your debt in its entirety and take full ownership of the vehicle. At the end of the day, everyone likes having options open to them don’t they?
The advent of new and innovative finance styles adds even more flexibility too. The concept of PCP (Personal Contract Purchase) and the balloon payment involved may not be the simplest thing to get your head around, but from a perspective of keeping funds free and reducing your monthly payment to a potentially more acceptable level – there is nothing else like it available. PCP essentially allows you to get more car for the money which you spend (as long as you are always aware that you will never technically own the vehicle).
So there you have it! Whether you are an old-hand at taking finance, or if you are just thinking of trying it out for the first time, then hopefully this article has been useful in understanding some of the benefits of taking finance over making a cash outlay upfront. Of course the most important thing to remember is not overstretch yourself financially (through car finance, a personal loan or just by spending your savings). Always prioritise your financial stability.
If you are worried about your levels of debt – or if you are worried about your financial situation in general – there are lots of people you can talk to. The government provides free debt advice for those in need, and there are various charities that will provide emotional support and advice for those who feel they are in over their heads – and we all feel like that sometimes don’t we? There is no shame in getting help if you need it.
Carsnip is the UK’s largest used car search engine, with over 500,000 dealer sold used cars across the UK. We operate a natural language search engine, to help you find your perfect used car, and narrow down the choice by what’s most important to you.
About the Author
Sam Wardega is a freelance car journalist working on behalf of Carsnip.com.
A lifetime Petrolhead who started with Hot Wheels aged 2, and now just spends his life savings on owning his dream cars. As they say, boys don’t stop playing with toys; they just get bigger and more expensive!
Disclaimer: The content contained in this article is for information only purposes, and does not constitute financial advice in any way. Carsnip is a search engine for buyers to find a new car, and does not endorse any of the finance products presented by the dealers who may advertise our website. This information is correct at the time of publishing. Any queries should be directed to email@example.com