Are you thinking about buying a new car this year?
If you’re ready to upgrade to a more environmentally-friendly model, buy a bigger family car, or simply invest in something a little bit more reliable, now is the time to start asking yourself some questions.
Should you buy an electric vehicle or more traditional petrol or diesel engine? Do you need a spacious SUV or would you prefer a compact motor for easy parking and city driving? And of course, you need to ask yourself how you’re going to pay for this new purchase.
Buying a new car is a big (and exciting) decision. Once you’ve done your research and know what type of make and model you would like, next you need to sort out your finances.
When making a big ticket purchase you need to take some time to consider the right finance option for you.
In a nutshell, there are two options when buying a new car.
1. Personal Loan
The simplest way you can finance a new car is by getting a personal loan from your bank or Credit Union. You can typically take out this type of loan with repayment terms ranging from three to five years and you can borrow the amount you want to pay for the car or make up any shortfall in savings or your current car's trade-in value. You’ll simply repay your loan every month and own your car from day one.
2. Personal Contract Purchase (PCP)
PCP or Personal Contract Plan finance on the other hand is a lease scheme. With a PCP you hire the car for a period of time, usually between three and five years. At the end of the PCP agreement, you’ll have a large final payment to make (a balloon payment) in order to own the car.
This balloon payment is also known as the Guaranteed Minimum Future Value (GMFV). Your GMFV will be calculated with your annual mileage in mind. With a PCP, you are also restricted with what you do while you are still ‘hiring’ the car. If your financial circumstances change and you can no longer afford the monthly repayments, you could find yourself in a sticky situation as technically the car is not yours to sell.
Before choosing which option is right for you, ask yourself, do I want to own my car right away? How much can I afford to pay each month? Are there hidden fees I should be aware of? And do I need a deposit?
To help you to become a more informed car buyer, the Credit Union has created a quiz on the differences between a car loan and a PCP finance plan.
Test your knowledge today with the quiz above and remember, always do your research!
With a Credit Union car loan you’ll own the car from the outset. There are no scary hidden fees, additional charges or balloon payments. Credit Union. Imagine More. Make a car loan enquiry online today.