If you have decided to get yourself a new car but how will you acquire it? Does it feel like a difficult decision, or do you know what you're doing?

What are the choices?

Well, obviously if you have the cash, you could simply go right out and buy it. – Unusual these days but hey the world is an increasingly unusual place!

More typically though you would look to finance your new vehicle so what are your options in this case?

You really have two main choices:

You can finance the entire thing on a hire purchase scheme where you pay off the entire cost of the vehicle over a set period and at the end of the finance period you will own the vehicle outright. 

Or buy the vehicle using a finance scheme called a PCP (personal contract purchase). The advantage of a PCP deal is that you only finance a portion of the capital sum (i.e. a part of the total vehicle cost price) which usually results in a much lower monthly finance payment.

The disadvantage though is that at the end of the finance term there will still be an outstanding amount to pay if you want to end up owning the vehicle outright. This final sum is sometimes known as the “balloon payment” and it can be quite substantial depending on the original price.

You usually have an option to refinance the “balloon” on a straight hire-purchase deal over a set term. At the end of that term, you will own the vehicle outright. (But by then you may have been paying for the car for 6 or 7 years depending on each contract term).

There is of course another way to acquire a new car and that is to lease. However, leasing is effectively another name for hiring or renting the vehicle. You will not own the car at the end of the lease period (unless you go for a lease-purchase deal in which case you will be obliged to pay the balloon at the end of the period).

The most popular term for straight forward leasing is contract hire, (personal contract hire if you are not a business).

However, let's go back to the assumption that you want to buy the car, - or at least have an option to buy the car.

So should you buy it cash, buy it outright on a straightforward HP scheme, or opt for a PCP?

What are the pros and cons of each?

Let’s start with a cash purchase: It may surprise you to find out that this method may not always get you the best price! 

Why?

Well, the dealer and / or finance company can very often make more money by selling you the car on finance. – in other words, they can lower the final price of the vehicle because they can make that back in chargeable interest on the finance deal.

This applies to both HP and PCP.

OK so let’s look at standard HP: As discussed earlier, the advantage here is that at the end of the term you will own the vehicle outright.

Possible downsides: Depending on the size of your initial deposit, your monthly repayments will probably be bigger than if you financed using a PCP. You may also end up with a higher rate of interest depending on the deal you negotiate.

Now let’s look at how a PCP deal works: Usually you will still have to put down an initial deposit – although this may be quite small depending on what deals are available. You should still negotiate hard to get the best purchase price. -Thereafter you will pay a fixed monthly fee for an agreed term; typically, 24 to 48 months.

At the end of this term you usually have 3 options:

• Hand the car back to the dealer. (You may have to pay an extra amount if you have gone over the agreed mileage or if there is damage to the car).
• Refinance the balance. This is a great option if you are in love with the car and can’t bear to part with it. However, you may not get an APR (Annual Percentage Rate) that is as low as the one you had the PCP on.
• Trade the car in for a new one. – this is the preferred option of both the dealer and – usually – the finance company. – You get a brand new car on another lower monthly payment (PCP) and they get a sale. (You may still be penalized if you are over mileage or if the car is damaged).

Usually, the percentage APR is lower on a new car which helps to deliver lower monthly payments. However, you can and should negotiate the APR whenever you can and especially on straight HP deals or on used vehicle purchases (including financing a PCP balloon).
 
So which route you choose to acquire your new vehicle depends as much on your own circumstances (including life and work-style) as it does on what deals are out there for the model you want.
 
Sometimes car dealers are not necessarily the best place to start.

What are my choices when acquiring a new car has a variety of answers. If you want help and advice, why not contact us at Tyson  Cooper and we will help you with your decision.