Summary

Usually the cheapest way to finance the purchase of your car is usually with a personal loan. But there are other methods. This article explains.

Car Loans Drive down the cost. Part 2

Author: Michael Challiner

Another alternative is Personal Contract Purchase, PCP for short,

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and in recent years PCP has become very popular. Here you also agree the mileage you expect your car to clock up each year. You then pay a deposit and part of the purchase price is deferred until the end of the ( best mortgages ) agreed payback period. Your monthly repayments then repay the balance and the interest. These schemes are highly flexible as you can select the length of the loan and the size of the deposit but you'll find that interest rates vary considerably between lenders. The current average is about 12.8% - still well above the 5.5% rate for a cheap personal loan.

At the end of the PCP contract you'll have three options: -

  • Pay off the deferred balance and keep the car
  • Trade in the car using the trade in value to help pay off the deferred ( cheap car insurance ) sum and hopefully leaving a balance towards a new car
  • Hand in the car and walk away with nothing more to pay.

This last option is always subject to your cars' condition reflecting normal wear and tear ( personal loans ) and its mileage is in line with the annual mileage you agreed when you purchased it. If the recorded mileage exceeds the forecast mileage, then you'll have an excess mileage charge to pay. The cost per excess mile will always be specified in the PCP agreement.

One of the big advantages of PCP is that the guaranteed buy back option ( home insurance quotes ) effectively protects customers against excessive depreciation of their car.

As you would expect, car dealers take a commission for selling PCP contracts and to encourage you, you may find they'll agree a bigger discount on your car if you take their PCP deal. If your lucky, they may even throw in a low cost servicing package or low cost insurance. But take care. You'll need to do some homework to ensure that these extra goodies are truly worth the extra interest charged on the PCP contract.