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Cash, Lease, PCP, HP, POL, BOL, Which is best for me?
Cash or lease; the decision you have to make when purchasing a new car. how do you decide which one is for you from a range of financing options?
Hello all and welcome back for another blog post from Bywater Motors. In this post I’m going to be breaking down the difference between the types of finance as I am frequently asked what the difference is between a PCP and a Lease as well as many other questions.
So to start I’m going to talk about a standard Lease. This is either a:
PCH (Personal Contract Hire) or a
BCH (Business Contract Hire)
Both mean you take a vehicle on a fixed monthly payment, you can put down 1,3,6,9 or 12 payments up front which lowers your payments, you choose your annual mileage and how many months you would like the car and at the end of the term you hand it back and decide what you would like next. Both PCH & BCH include road fund license and you can add maintenance which generally covers servicing, AdBlue top ups if it’s a diesel and the option to pay extra to give you tyres for the life of the agreement.
The difference between a PCH & BCH is a BCH goes in a business name and so separates the VAT. You are entitled to claim back half of the VAT if you are a VAT registered company, this makes your car 10% cheaper however you may be liable for company car tax depending on your situation.
The benefit of a lease is it’s simplicity and it’s usually a fair bit cheaper than other methods of purchasing a car but this is not always the case. You are not the registered keeper with a Contract Hire agreement, the finance company remain the registered keeper as they own the vehicle but you can still put your private number plate on the vehicle if you so wish.
Next we will talk about what in recent years has been the most popular choice when it comes to funding vehicles and thats PCP (Personal Contract Plan). A PCP is a type of finance agreement where you pay a deposit of your choosing (none if you don’t wish to) you then have a balloon payments at the end which is usually 30-40% of the vehicles value depending on your chosen monthly term and mileage. You make payments on the bit in the middle as per the picture below:
PCP works well for people who still want the vehicle in their name as well as the flexibility to change their car early. With a PCP you can change the car whenever you like, simply find out what it’s worth and what your settlement figure is and that will tell you if you have any equity in the vehicle. At the end of the agreement the GMFV (Guaranteed Minimum Future Value) aka balloon is all thats left, you can either pay it and keep the vehicle, part exchange it, re-finance it, sell the car privately and settle the balloon or hand it back to the finance company. Lots of options.
Hire Purchase or HP for short is the most simple type of finance and was for many years the finance of choice, this is mostly down to PCP not existing until about 2004 and didn’t really become popular until 2008. HP works very similar to a bank loan, you put down a deposit and make your payments on the balance outstanding until the vehicle is clear of finance for example.
A £20,000 car with a £5,000 deposit will mean you’re borrowing £15,000. Let say you do it over 4 years it will be £15,000+interest divided by 48 Months.
This may seem obvious as everyone knows what cash is as well as how to pay for a car cash. I will be doing a separate post about buying cash for vehicles and I think everyone should read it. If you’ve never paid for a car cash it will make you feel better about that. If you always pay cash it may just make you think twice.
P/BOL- Personal/Business Operating Lease
A Personal or Business Operating Lease is very similar to a Contract Hire. The main difference between the 2 if the with an OL you become the registered keeper of the car. This gives you the benefit of having the vehicle in your name which some people prefer but also for some customers this is a must especially those who live in city centres where parking permits are issued to residents or you have to go over a certain toll bridge or road to get to work as these permits often require the vehicle to be in your name. The downside to an OL is that you are responsible for the cars Road Fund License however this is offset by the cars being slightly cheaper a month on an Operating Lease than they are on a Contract Hire.
That about covers the different ways to purchase your next vehicle be it a car, motorbike, van, lorry etc. Please let me know if you think I have missed anything or you would like some additional information on any of the above. If you are not in the motor trade you are not expected to know these things, we are trained in the different types and as salesman it is our jobs to provide you with all of the correct information in order to help you make a decision. Unfortunately most salesman will guide you down the path that best suits them regardless of your personal outcome.
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