­Guide To Financing A Car

Finding the best way to finance your dream car

So you’ve decided to get a new car. Congratulations! But making your dream reality can prove more challenging. Among the many deciding factors you need to ask are: which is the safest to drive? How much will the insurance cost? What’s the fuel consumption? Plus, you need to work out how you’re going to pay for it.

There are many options readily available to you, especially at the JCB Group. You’ve got about six ways of financing that can lead to your dream car. But before you start choosing which option is for you, let’s take a look at what each of them are, and whether it suits you and your car’s needs. Let’s start with the personal loan.

Personal Loan

According to a survey from whatcar.com, a personal loan is the most popular way of financing your car. This involves borrowing money from a bank, building society or lender and owning the car from the very beginning. Sounds easy, but there’s other areas of this you need to consider.

When choosing your loan, check the annual percentage rate (APR). This is important because it’s the additional cost to your loan. For example, if you borrow money and the interest rate is 5% a year, it will cost you 5% of the amount borrowed to do so. This will need to be repaid along with the original money you borrowed. The lower the APR, the less extra you have to pay.

You can also choose to pay back over a longer period of time, but this means paying more interest. It’s important to be disciplined and pick a length of time that works for you, so that you can pay it off without it costing the earth.

One downside of choosing this option is that if you default on a payment, your personal assets are at risk of being taken, compared to dealer finance (see below) where it’s the car that’s at risk of repossession.

Dealer Finance

This option is all about the research. You will need to check out the details on current (and, if you can find them, upcoming) manufacturer finance deals. These might include interest-free or low APR rates, or deposit contributions and even free insurance. If you go to your local dealer without this research, you will have no way of knowing if you’re getting a good deal. Usually with dealer finance, it involves “packages deals” which may include, for example, free servicing.

Don't fixate on the rate or monthly repayments. Look at the total repayable amount to understand exactly how much dealer finance will cost you, and compare those to what you can get in the open market. And don’t forget to get the final offer in writing! As mentioned before, the only thing at risk of repossession with this option is your car.

Hire Purchase

This is a very simple way of buying your dream car. You pay a deposit on the vehicle, usually around 10% of the cost, and then pay fixed monthly instalments. If you’re ok with not owning the car outright then this is the path for you, as the company who provide the hire purchase owns the car until the final payment and any 'option to purchase' ownership-transfer fees have been paid.

Much like dealer finance, it’s the car at risk of repossession if you default on a payment. And if you want to sell the car before the end of your agreement, you'll have to repay the outstanding debt first, and “early settlement” fees may apply.

It’s quick and easy to do this through the JCB Group, but if you want to read more about hire purchasing, then watch this videoto see the benefits.

Personal Contract Hire (PCH)

If you’ve heard of “personal leasing” then this is the same. The word “hire” is the biggest hint as to what this finance option is about. You don’t own the car from the time you put the deposit down, during the time you drive it, or when you hand it back at the end. The monthly payments cover the costs of its depreciation.

While the car is with you, you have to upkeep it and make sure it’s kept in a well-maintained state. And you have to stick to the mileage agreed when you chose the PCH plan. This is usually at 10,000 miles, but you might be able to change that.

The deposit is low for this option, as are the monthly payments, plus there is the option to include maintenance in your agreement, so if you are faced with an unexpected repair, you’re covered. It’s best to do your research into the car you want as well, because if the value is likely to plummet significantly then this is not the option for you. You’ll end up paying back much more than the car is worth.

Personal Contract Purchase (PCP)

According to whatcar.com, PCP is the second most popular way of financing your new car. It’s a lot like the hire purchase option, in that you pay your deposit, a fixed interest rate and monthly payments usually lasting between 12 and 36 months (and up to 49 months with JCB Group). The only difference is what happens at the end, at your last monthly payment. You will be presented with three options:

Return the car to the supplier: This option is pretty self explanatory. It won’t cost you anything to take the car back, but if you’ve gone over the agreed mileage, extra costs will have to be paid. This also applies if you return the car in a bad state.

Keep the car: This option means you will own the car after you’ve made a “balloon payment”. This is worked out with the guaranteed future value (GFV) of the car, which will be calculated when you decide to get your dream car with a PCP plan. The GFV is based on various factors, including the length of the loan and the anticipated mileage as well as the car's projected retail value.

Trade in the car for a replacement: Think of it as getting to the end of your phone contract and upgrading to the latest iPhone. With this option, you can give the car back and use the GFV worked out at the beginning of your agreement as a deposit towards your next car. Looking a lot better than a phone upgrade, isn’t it!

Here at the JCB group, we offer a PCP plan with our cars. Fancy seeing how we can help you finance your car with the PCP? Check out our video on what options we can offer you.

Self-Finance

The last option here is self-financing your new car. The title of this makes the definition pretty evident: you’re paying for the car without any kind of financial assistance from a bank or lender. Say you’ve just won some money on the lottery (congratulations!) and you see that the UK savings interest rates are low (which they are), so you decide to buy a car outright. That’s self-financing.

As it’s unlikely that you have won the lottery, you can still self-finance through using a credit card. While this is not a popular option and can be quite costly, some credit cards offer a zero percent interest rate on balance transfers and on purchases for a set period of time. Play this to your favour if you want to self-finance your car with it, but be careful!

Financing your new car with the JCB Group

Did you know you can also contract hire your car with the JCB Group? This could be for personal or business use. Read up on the finance options available with JCB or take a look around one of our showrooms in Kent and Sussex to speak to one of our trained advisors.