The vast majority of our finance deals are backed by the factory through Volkswagen Financial Services, and of course they’re keen to support the sale of new cars. In fact VWFS also support the sale of used cars, often by supporting low rate finance which is often substantially cheaper than High St lenders. As they’re not a High St lender so they have to be highly competitive. But if it’s always worth asking what deals we have available and checking the Special Offers on the website.
Leasing costs are based on the difference between the initial price and what we expect the car to be worth at the end of the lease: the residual value. So a £30,000 car worth £20,000 after three years can be cheaper than a £25,000 car that’s only going to be worth £13,000. Sometimes for instance, a top-specification model like the L&K might be cheaper to lease than an SEL because demand is very strong for the L&K. So always come and talk to one of our Sales Advisors and see what’s on offer: you may well end up with a better car than you’d bargained for!
Let’s explain three of the most popular ways to finance your car so you can decide which is right for you. This guide will walk you through three of the most popular finance plans – Hire Purchase (HP), Personal Contract Hire (PCH) and Personal Contract Purchase (PCP) – to help you decide which is right for you.
Hire Purchase (HP)
If you choose to pay for your car with a Hire Purchase agreement, you will normally pay an initial deposit and will pay off the entire value of the car in monthly instalments. When all the payments are made, the Hire Purchase agreement ends and you own the car.
- You’ll be able to drive away a car that you may not have managed to buy outright.
- Unlike a PCP or PCH contract, you won't need to estimate your mileage at the start of your Hire Purchase agreement, so you'll avoid excess mileage charge
- Once you’ve made your final monthly payment, you'll have full ownership of the car.
Things to bear in mind
- Monthly payments may be higher than other finance options, such as PCP, as you're paying off the full value of the car.
- You won’t be able to sell the car without settling the finance.
Personal Contract Hire (PCH)
Personal Contract Hire (PCH) is a type of long-term rental that will suit you if you’re not looking to buy the car at the end of your contract. You lease the car for an agreed period of time by making fixed monthly payments. When the contract expires, you simply return your car or take out a new contract on a new vehicle.
- It’s hassle free, as you can drive away a new car without worrying about the warranty running out, or how you'll re-sell it.
- Your monthly payments on the car will be much lower than if you were buying it.
- It's flexible - you can change your car easily, and you will have access to new cars that you may not have been able to afford to buy.
Things to bear in mind
- There’s no option to buy the car at the end.
- You will need to agree an approximate mileage estimate at the beginning of your contract - there may be a mileage charge if you exceed this.
- You’ll have to take out comprehensive car insurance - it's not included in your contract.
Personal Contract Purchase (PCP)
Personal Contract Purchase (PCP) is similar to a Hire Purchase agreement as you will usually pay an initial deposit, followed by monthly instalments. What's different with PCP, is that your monthly instalments are only paying off the depreciation of the car, rather than the entire value of the car.
How does PCP actually work?
At the start of your PCP contract, a Guaranteed Future Value (GFV) of the car is estimated. This is the car's expected value when your contract ends.
For you, this simply means that the money you're actually borrowing and repaying is the difference between what the car is worth now, and what it will be worth at the end of your contract (the depreciation). You'll pay this difference off in monthly instalments. This means lower monthly payments for you, but you will need to pay a final payment at the end (the Guaranteed Future Value) if you want to buy the car.
Once your monthly payments are finished, you’ll have three options:
- Buy the car by paying the final balloon payment (the Guaranteed Future Value)
- Hand the car back - your finance company has already predicted the Guaranteed Future Value of the car, so handing the car back will settle the deal.
- Part exchange for a new car
- Monthly payments on a car financed by PCH are usually lower than if your car is financed by a Hire Purchase agreement.
- If you decide not to buy the car, you can simply walk away when you've made all the monthly payments.
- Similar to PCH, you can drive away a brand new car every three years without worrying about it running out of warranty, or selling it on.
- If your car is worth more than the Guaranteed Future Value then you can use that equity towards a deposit on a new car.
Things to bear in mind
- If you want to buy the car you will need to pay your final balloon payment (the Guaranteed Future Value)
- Similar to PCH, you will need to agree on an approximate mileage estimate at the beginning of your contract.
Can I settle my PCP deal early?
You can normally settle your deal early, however many finance companies will require you to pay off the difference between what your car is worth now, and what you still owe (negative equity). For example, if your car is currently worth £12,000 but your finance settlement figure is £14,000, then you will need to pay the £2,000 to clear the negative equity. Keep an eye out for early repayment charges!
In a word, no. What you can do is end the agreement early, but you may well incur additional charges and you may find that it’s better financially to continue the agreement. That’s why we always spend a lot of time making sure you fully understand the different schemes so that you can decide which suits you best before you buy.
The average excess mileage charge on a lease is currently around 7p per mile, so on your current contract, the additional 12,000 miles would indeed incur an additional charge of £840 when you hand the car back in. That charge reflects the lower residual value of the car with higher mileage and would be the same if you owned the car outright and wanted to sell it on the open market. Under certain circumstances, however, you can adjust the mileage on a lease: you must have had the car for at least six months and you can only increase the mileage, not decrease it. If you think your mileage is likely to increase, raise this with your Sales Advisor at the start of the process and we’ll explain all the options and make sure the lease package suits your needs.
The vast majority of our customers now use some sort of finance to ‘buy’ a car. And indeed, the automotive finance industry is very competitive, so finance providers linked to manufacturers such as Volkswagen Financial Services will often make special offers to win business. Sometimes those special offers might be as low as 0% finance and in those circumstances we’d probably advise customers to retain their capital and take advantage of the offer. Especially in uncertain times!So always come and talk to one of our Sales Advisors and see what’s on offer – you may decide to keep your capital for a rainy day!
In a word, yes. And that’s the protection you get from finance that’s secured against the car rather than, say, your home. With the kind of funding we offer, you have a legal right, once you’ve paid off 50% of the loan, to hand the vehicle back with nothing further to pay. Moreover, if you’ve paid back a third of the loan, the finance company can’t repossess the car. So it’s always worth getting a finance quote from us as a comparison as you know you’ll be fully protected, whereas you won’t get the same protection on a loan that’s secured on your property. And in uncertain times, that level of security and protection might be welcome!