If you’re considering buying a car, you might consider car finance. This can be a great way to spread the cost of your vehicle over a period of time, making it more affordable. But what happens at the end of a car finance agreement? Let’s take a closer look.
In this blog:
What is a car finance agreement?
What are the different types of car finance agreements?
What is Personal Contract Purchase?
How long do car finance agreements last?
What happens at the end of a Hire Purchase agreement?
What happens at the end of a Personal Contract Purchase agreement?
What is a car finance agreement?
A car finance agreement is a loan that allows you to buy a car and pay for it over time. Rather than paying the total amount upfront, you’ll make monthly payments to cover the vehicle cost plus interest. There are several different types of car finance agreements, and each has its own terms and conditions.
What are the different types of car finance agreements?
The most common types of car finance agreements are Hire Purchase (HP) and Personal Contract Purchase (PCP).
What is Hire Purchase?
Hire Purchase (HP) is a car finance agreement that allows you to buy a car and pay for it over time. With a HP agreement, you’ll make fixed monthly payments over a set period, typically two to five years. The car will remain the property of the finance company until you’ve made all the payments. Once you’ve made the final payment, you’ll own the vehicle outright.
Depending on the car and the agreement, HP agreements typically require a deposit upfront, ranging from a few hundred to a few thousand pounds. The size of the deposit will affect the size of your monthly payments. The interest rate on a HP agreement is also fixed, which means you’ll know exactly how much you’ll be paying each month and how much you’ll pay in total over the life of the agreement.
What is Personal Contract Purchase?
Personal Contract Purchase (PCP) is another type of car finance agreement that allows you to buy a car and pay for it over time. With a PCP agreement, you’ll make fixed monthly payments over two to four years. However, unlike a HP agreement, the payments on a PCP agreement only cover a portion of the car’s value, which means the payments are typically lower than those on a HP agreement.
One advantage of a PCP agreement is that the monthly payments are typically lower than those on a HP agreement, making it more affordable for some people. The other advantage is the flexibility at the end of the agreement – you can choose to return the car, pay the balloon payment and keep it, or trade it in for a new one.
How long do car finance agreements last?
Car finance agreements typically last between two and five years, although the exact length will depend on your agreement type. Shorter agreements will mean higher monthly payments, but you’ll pay less in interest over the life of the loan. Longer agreements will mean lower monthly payments, but you’ll pay more in interest overall.
What happens at the end of a Hire Purchase agreement?
You’ll own the car outright at the end of a HP agreement. This means you’ll have full ownership and can keep the car, sell it, or trade it in for a new one. There are no further payments to make, and you won’t have any balloon payment to worry about.
It’s worth noting that some HP agreements may require you to pay a final “option to purchase” fee to take full ownership of the car. This fee is typically relatively small, but it’s essential to check the terms and conditions of your agreement to see if it applies.
What happens at the end of a Personal Contract Purchase agreement?
At the end of a PCP agreement, you’ll have three options. You can return the car to the dealership with no further payments. This can be a good option if you’re not interested in keeping the car long-term or if you want to switch to a different make or model.
Alternatively, you can pay the final balloon payment and own the car outright. This can be a good option if you want to keep the car long-term and avoid the hassle of starting a new finance agreement.
Finally, you can trade the car in for a new one. This can be a good option if you want to upgrade to a newer or more expensive model or want a change.
In all cases, it’s essential to check the terms and conditions of your PCP agreement to see what your options are at the end of the agreement. You’ll also need to ensure you’re aware of any fees or charges that may apply, such as excess mileage or damage charges.
Car Finance can be a great way to buy a car and spread the cost over time. What happens at the end of the agreement will depend on the type of agreement you’ve chosen. It’s essential to read the terms and conditions of your contract carefully so you know what to expect at the end of the agreement.
Check out how much you can afford
If you’re considering car finance, knowing your budget and finding a deal that works for you is crucial. That’s why we recommend using Marsh Finance’s car finance calculator. This free tool allows you to quickly and easily calculate your monthly payments based on your deposit, the length of the agreement, and the interest rate. With this information, you can determine your budget and find a car finance agreement that works for you. So why wait? Visit Marsh Finance’s website today and use their car finance calculator to start exploring your options!
Representative Example
Rates from 12.9%
Representative example: borrowing £10,000 over 60 Months with a representative of 23.0% APR, an annual interest rate of 23.0% (fixed) and a deposit of £0.00, the amount payable would be 59 repayments of £269.58 per month, with one final repayment of £279.58 (which includes the option to purchase fee of £10.00), with a total cost of credit of £6,184.80 and a total amount payable of £16,184.80. Marsh Finance Limited are a lender, not a broker.
Marsh Finance Limited are a lender, not a broker.
This is for illustrative purposes only and is not a quote or an offer of finance.