We know how daunting it can be to research and choose the right financing option for you and your circumstances. We thought it would be beneficial to clearly outline all the pros and cons of car financing, we chose to focus on the 3 main types that are most commonly used. Here at Vendor Finance, we hope that this clear list of pros and cons of PCP financing, Hire Purchase and an Unsecured Personal Loan will help you to identify which is the best option for you.

PCP

Pros:

• The monthly payments are often smaller than getting a direct loan for the asset
• A newer vehicle can decrease maintenance and running costs
• You have the option of upgrading to another car and enter a new contract

Cons:

• You must keep the car in good condition and only service it at the stipulated service station
• There is a mileage stipulation that you must adhere to which can be quite low, usually the lower the mileage limit you agree to, the cheaper the monthly payments will be
• You can’t modify the vehicle as you like
• The final Guaranteed Minimum Value can be a significant amount
• The penalties incurred for damage to the vehicle and going over the mileage limit can be very high
• Once you get into a PCP contract, often people have found that it is difficult to move to a new car brand
• You may have to have a new deposit each time you want to upgrade to a new car
  

  Hire Purchase

  Pros:

  • It can depend on the financial institution as to whether you will need a deposit or not and it can depend on the amount you are expecting to finance. A higher deposit percentage of the cost of the vehicle can sometimes increase your chances of getting the financing you are looking for
  • You are paying for your car in instalments so there are no lump sum payments
  • You own the vehicle as it stands once the final payment is made
  • The interest rate is fixed throughout the period of the finance agreement so you will know exactly what you’ll be paying every month
  • You can tailor the length of the finance agreement to suit your needs to a certain degree
  • You can often pay off the loan early, sometimes paying a penalty as little as just one month’s interest to do so
  • It enables you to have a newer, higher specification car than you could or would want to buy outright
  • You don’t have restrictions such as service or mileage clauses
  • Simple application process

  Cons:

  • As the loan is secured against the vehicle then if you cannot make the repayments on the car, the car can be taken off you, this can also negatively impact your credit rating and affect getting loans or financing in the future
  • You do not own the vehicle until the final payment is made, essentially you are doing a rent to buy type of agreement with the lender
  • You will end up paying more for the car by the end of the financial period as you will be paying interest rather than if you paid outright for the car
  • Your credit rating can affect the interest rate that you are offered, if you have bad credit then you are more of a risk by financial institutions so you will have to pay more for the loan

  Unsecured Personal Loan from a Bank/ Credit Union

  Pros:

  • Simple application process
  • No risk of repossession if you default on the loan
  • More flexibility on the length of the loan which gives you more control over the monthly repayments
  • You can pay the loan off early before the end of the loan term

  Cons:

  • Slower to get through the loan application process
  • Higher need for good credit rating as it is a riskier loan for the lender
  • Not as convenient as you generally must go to your own financial institution who you bank with
  • The amount they agree to loan you may be smaller than going through Hire Purchase that works as a secured loan
  • The interest is usually significantly higher on an unsecured loan so you will have to pay more in the long run, whereas with PCP and HP, they can repossess your vehicle and not be at a total loss and this is lower risk for finance companies
  • Having more flexibility to adjust the length of the loan agreement can also be a negative as the longer it takes you to repay the loan, the more interest you will have to pay, so although the monthly repayments may be cheaper, the long run it will be much more expensive
  • Very often the loan may be on a variable rate which could increase the cost during the life of the loan

  Here at Vendor Finance, we work with several lenders that offer Hire Purchase facilities, which offer many advantages for financing your car. You must, however clearly determine which is the best option that suits you and your personal circumstances. It only takes a few minutes to fill out an application form on our website and you could be approved for car finance within a few hours.

   

  If you are still unsure about car finance, then don’t hesitate to give us a call and we’ll be happy to help out!