Types of Vehicle Finance
Custom Vehicle Contracts offers various purchase and lease plans to cater to different customer preferences and needs. We are brokers of these finance agreements, not lenders; which means we work with a carefully selected panel of finance companies to offer some of these products to you. When you speak to us we'll discuss your requirements and goals; and offer you information and quotes to help you make an informed decision. If, at any time, you'd like more information about each of the options available to you, we'd be delighted to help. Let's take a closer look at each of the key purchase and lease plans:
- Hire Purchase: In this plan, the customer borrows the required amount from a finance company to purchase the vehicle. They agree to make regular payments over a set term. However, the lender retains legal ownership of the vehicle until the full amount is repaid. Once the loan and all charges are paid off, the customer becomes the owner of the vehicle. If it's a hire purchase, there might be an additional 'option to purchase fee' at the end. Hire purchase agreements have interest charged and you may see this quoted as an APR (Annual Percentage Rate). This type of agreement might be right for you if you are certain you'd like to own the car at the end of the finance period.
- Personal Contract Purchase (PCP): PCP is a form of Hire Purchase. In this plan, part of the vehicle's cost is deferred to the end of the agreement in the form of a balloon payment. At the end of the agreement, the customer has three options:
- Pay the balloon payment and keep the vehicle.
- Hand back the vehicle without incurring further costs.
- Trade in the vehicle for a replacement.
Like Hire Purchase, you'll pay interest with this type of agreement and the amount you'll pay will be demonstrated on your quote and finance agreement. PCP might be right for you if you want the option to own the car at the end of the agreement, but also want the ability to hand the car back. You should consider how you might pay the 'balloon' payment at the end of the agreement if your intention is to own the car. Your annual mileage will be a consideration and will affect the monthly payments under this type of agreement. If you intend to hand the vehicle back to the finance company or trade it in, you should consider if its age and mileage will affect the vehicle's value; higher than contracted mileage or damage to the vehicle could mean the vehicle value is less than the balloon payment and could mean additional charges for you.
- Lease Purchase: Similar to Hire Purchase, Lease Purchase involves structured payments like a lease agreement. The customer makes several payments in advance instead of a deposit. Once all payments are completed, the customer gains ownership of the vehicle. In most cases, the contract will also have a pre-agreed final, or balloon, payment at the end. At the end of the contract, if the customer has made all the monthly payments, they will own the vehicle.
At the end of the agreement you would have two options:
- Pay the balloon payment and purchase the vehicle
- Some customers may be able to hand the vehicle back - (Private customers, sole traders or small partnerships; and where the amount financed is under £25,000)
This product might be right for you if you are sure that you'd like to own the vehicle at the end, but would like to defer an amount of the vehicle cost to the end of the agreeement (the balloon payment). You should consider how you would pay the balloon payment at the end of the agreement.
- Personal Loans: These loans are provided directly to consumers by banks, building societies, or lenders. The borrower makes regular monthly payments until the loan is repaid, and a non-secured loan agreement is not tied to the vehicle in any way and you would usually own or 'have title' to the vehicle from the outset. Custom Vehicle Contract do not offer this type of finance.
Contract Hire and Personal Contract Hire (PCH): In Contract Hire, the customer funds the use of the vehicle for a specific period without any intention of owning it. It is similar to renting the vehicle for an extended time. At the end of the lease agreement, the customer returns the vehicle to the leasing company without any further obligations.
This type of finance may be right for you if you like to change your car every few years and like to keep your payments low. The amount of time you keep the vehicle and your annual mileage will affect the amount you pay. Agreements will have an 'excess mileage' cost which is usually pence per mile if you exceed the mileage on the agreement. If your circumstances change and you need more mileage on your agreement, you can usually amend this mid-contract. At the end of the agreement when you hand the vehicle back to the finance company, you should make sure the vehicle is in condition commensurate with 'fair wear and tear'. Damage to the vehicle may be chargeable if you do not fix this before returning the car. We will provide you with a 'fair wear and tear' guide to help you assess what would be considered acceptable.
Finance Lease: Finance Lease is designed for business customers. It funds the use of a vehicle, and the agreement may include a balloon payment at the end of the lease term to reduce monthly payments. Unlike Contract Hire, the customer is usually responsible for selling the vehicle as an agent of the finance provider or leasing company at the end of the agreement. There is no option to hand the vehicle back at the end of this type of agreement, and you should consider how you might pay the balloon payment if the agreement has one.
Each plan has its advantages and considerations, and customers can choose the one that best suits their financial situation and preferences. For more detailed information on each plan, you can speak to us and we can go through in more detail the pros and cons of each type of funding.
Please note, there may be additional types of funding available on the market that Custom Vehicle Contracts do not provide.