When you finance a car, you pay each month. Because of this, you won’t have to pay a lump sum upfront, but rather pay over time. However, you may need to make a down payment with some car finance companies.

A typical term length ranges from 12 months to five years depending on the type and provider of the financing.

Your car finance agreement will differ depending on the type of agreement you choose. In order to repay the personal loan, you make monthly payments until it is paid off.

As with hire-purchase, PCP works similarly, but monthly payments are based on the amortization of the loan rather than the vehicle’s cost.

A method of paying for a vehicle without paying the entire amount upfront is to compare car finance, which is also called HP. With the option of purchasing the vehicle at the end of the contract, the car is basically rented.

Various Types Of Car Financing Are Available.

Obtaining car financing is possible in a number of ways. Here are some of them:

A Loan for a Car

To buy a car, one has to take out a personal loan. Your bank or online provider may be able to help you get the car of your choice if your loan application has been approved. You will own the car outright from the beginning since you will purchase it. In this case, your lender will require you to pay your loan in full every month until it is paid off.

Purchase of Hiring Personnel (HP)

In a hire purchase arrangement, a deposit is put down and the remainder of the price is financed.

The finance company retains legal ownership of the vehicle while you repay the amount monthly. At the end of the term, you can pay the finance provider a small “option to purchase” fee in order to obtain ownership of the vehicle.

When you pay the final payment on a conditional sale, you own the car, similarly to a hire purchase, but you do not have to pay an additional fee when the term ends.

Preferential Purchase Agreement (PPA)

The difference between PCP and hire purchase is that you do not have to pay the entire value of the vehicle at the beginning. Therefore, your monthly payments are based on what you expect the car to be worth at the end of the loan term compared to what it was purchased for. Due to the fact that you don’t have to pay off the entire value of the car, monthly payments are lower than with other financing options.

When the term is over, you can keep the car or return it. In most cases, there is a final ‘balloon’ payment which is usually a significant sum if you decide to keep the vehicle. As such, in this case, the payment depends on the Guaranteed Minimum Future Value (GMFV) of the vehicle, which is approximately its value at the end of the term.