The popularity of larger cars is ever-increasing, particularly due to a higher sense of security and an abundance of space. In fact, SUVs made up 45% of global car sales last year, and have accounted for over half of new car registrations in Europe this year.
If you’re looking to buy a large car, now is the time. With a variety of different options available on the market like the new Hyundai Tucson, you’re sure to find something you love. Perhaps you need an upgrade to accommodate the increasing size of your family? Maybe you happen to prefer spacious vehicles? Either way, it’s important to consider how you’ll finance the car if you cannot purchase one outright, as it’ll likely be more expensive than your previous motors.
In this guide, we’ll discuss some of the different ways you finance your new purchase, allowing you to make well-informed choices that work for both your budget and preferences.
Personal loans
A personal loan can be taken out from a bank or building society to pay for new and used cars and private sales. When you take out a personal loan, you borrow a fixed sum and then repay it in monthly instalments. There will also be interest added to this.
Typically, loan terms will range from one to seven years but it depends entirely on the situation and what you are willing to pay back each month. The interest rates will also differ based on how much you borrow, with smaller amounts attracting a lower interest rate (APR).
By going for this option, you buy the car outright. This means you are now the owner and can modify it, drive however much you want, or even sell it.
Personal contract purchase (PCP)
A personal contract purchase (PCP) is often taken out with new cars through car dealerships, finance brokers, and car supermarkets, but can also be taken out for some used cars.
Essentially, a PCP sees the car’s depreciation paid off in monthly instalments over several years. You’ll often pay a deposit of around 10% of the car’s value and then come up with a set number of repayments, including interest to cover the predicted depreciation.
It’s important to note that some cars will lose value more quickly than others once they are driven off the forecourt, so make sure that PCP is ideal for your vehicle of choice. When applying for a finance plan, the lender will predict a minimum value for the car at the end of the contract, called the ‘guaranteed minimum future value’.
Once you have come to the end of the PCP deal, you have the option to pay an optional ‘balloon payment’ to own the car outright. This amount is the remainder of the car’s value. You can also use any overpayments to put towards a new car, should the vehicle have retained its value more than expected. Alternatively, you can just return the car with no extra fees.
Personal contract hire (PCH)
Personal contract hire (PCH), also known as car leasing, is basically a long-term rental agreement. Similar to PCP, you’ll pay a deposit and then a set amount over a number of months, allowing you to use the vehicle during this time. The main difference between these contracts though is that you must hand the vehicle back at the end of the agreement.
Normally, the longer you agree to rent the vehicle, the lower the cost will be each month. However, do be aware that any damage beyond general wear and tear will need to be paid for. The main benefits of PCH include the price often being cheaper, and you will usually get breakdown cover, road tax, and warranty included in the deal.
