Presto Finance - Hire Purchase Finance Explanation

Hire Purchase Facts:

• Fixed Interest Rate
• Deposit and term can be adjusted to find the monthly payment that suits you
• The finance is against the vehicle
• Other forms of credit will remain available for future use
• Agreement can be settled at anytime
• At the end of the agreement you have full ownership of the vehicle

What is Hire Purchase?

Hire Purchase (HP) is a finance product that allows you to budget accurately thanks to fixed interest rates and monthly payments. With HP you are effectively hiring the car until the end of your agreement, when with your final payment you purchase it and the car becomes yours.

HP deals can be tailored to your requirements by simply adjusting the length of your agreement (usually from 1 to 5 years) and the amount you pay as an initial deposit. Typically, a deposit will be around 10% of the total value of the car; however, a 0% deposit may be an option.

With HP financing your new vehicle acts as the security for the finance arrangement, ensuring that any other lines of credit that you may wish to take advantage of remain open to you. Because of the flexibility of Hire Purchase, you are able to settle your agreement at any time, without financial penalty. You could also upgrade before the original arrangement is complete and a new payment plan will be organised for your new vehicle.

Benefits of the purchase:

• It enables you to purchase a more expensive car than if your deposit alone was used
• It is simple to understand and arrange
• The finance agreement is flexible and can be ended at any point
• At the end of your agreement you own the car outright
• It is easier to get approved on, especially if you have a poor credit score
• The car acts as security so you are not closed off from other forms of finance

What are the advantages of Hire Purchase?

If you're not able to afford to buy a car in one big purchase, Hire Purchase can help fit the costs of buying a car around a monthly spending budget. With flexible repayment terms, you'll be able to pay as much as you can afford.

Of course, longer repayment terms will result in higher interest paid overall. However, even with a longer repayment term, the interest rates on your Hire Purchase agreement will be the same, so you'll know exactly how much you need to pay every month without any surprises.

When it comes to paying a deposit at the start of the process, as we mentioned above, it will most likely be quite low. Additionally, in some cases, once you've paid half the cost of your car, you may be able to return it and not have to make any more payments.

What are the disadvantages of Hire Purchase?

As we mentioned before, until you make your final payment, you don't own the vehicle. The deposit you put down, and the term length you choose, will also affect these payments. If you have a short term on the loan and your deposit is smaller, your loan repayments will often be higher than if you have a longer term and pay more of a deposit.

Until you have paid a third of the total amount of the vehicle, the lender is able to repossess the car without needing to get a court order.

How does my credit history affect the interest rate?

Presto Finance Ltd. is a credit broker, not a lender, and is authorised and regulated by the Financial Conduct Authority. The interest rate is fixed for the term of the agreement and is determined subject to status by your credit score. HP Deals are available from 12.9% representative APR.

No matter your credit history, you can compare finance deals from a panel of lenders using your credit rating. Carry out a Free Car Finance Check, which uses a quotation search to show your likelihood of acceptance without affecting your credit rating. It is quick and easy to apply online once you have found your ideal car.

What is a Conditional Sale Agreement?

A Conditional Sale Agreement (CSA) is a type of car finance agreement where the borrower agrees to purchase a vehicle under certain conditions. The borrower takes immediate possession and use of the vehicle but only becomes the legal owner after fulfilling the conditions, typically making all the agreed-upon payments.

Presto Finance - PCP - (Personal Contract Purchase) Finance Explanation

PCP facts:

• Reduced monthly payments
• Deferred final payment
• Settle agreement at any time
• At the end you can keep the car by paying a balloon payment, return it or part exchange if for a new one

What is Personal Contract Purchase Finance?

Personal Contract Payment (PCP) is a finance product that reduces the monthly payments by delaying part of the repayment until the end of the deal. It offers a wide range of flexibility with monthly payments, annual mileage and deposit all adjustable to meet your needs. You can also settle your agreement at any time.

All these factors play a part in how much you pay back each month. PCP is a very flexible method of payment. As with Hire Purchase, the more you put down as a deposit, the less you will pay back each month, however with PCP a low annual mileage can also mean that you pay less per month. An accurate mileage prediction is important for PCP as it affects the residual value of the car so it is important to give clear and accurate information to your Business Manager as penalties can apply if you exceed your stated mileage.

Benefits of PCP:

• Lower monthly payments than Hire Purchase or a Personal Loan
• The ability to drive a more expensive car
• The future value of the car is guaranteed by the finance company
• Multiple options open to you at the end of the deal

Can I finish PCP early (pay off or cancel)?

If you choose to finish your finance deal early, whether that's due to a change in circumstances or wanting to buy the car, you can return the car for a valuation. This valuation will calculate a settlement figure, which is the amount that you are required to pay to close the finance deal, you can also have the option to purchase the car. Once you have the valuation settlement figure, you will then have two options: you can pay the settlement and keep the car, or you can sell the car.

Advantages of PCP

Unlike a personal loan or Hire Purchase (HP), you can get behind the wheel of a new used car for lower monthly repayment costs. It'll also let you fit the monthly payments to suit your budget, so you could buy or borrow a more expensive car than you might not have been able to afford outright.

Since PCP finance deals are only offered on new or nearly-new cars, it's less likely that you'll need to fork out for repairs, so you'll be able to fit it into your finances more easily. Also, since the cars have a minimum sum's worth at the end of your contract, you won't need to worry about the future trade-in or resale value of it.

Finally, a PCP deal is flexible - you'll have several options at the end of your contract, meaning you'll be able to decide whether you want to buy the car or not.

Disadvantages of PCP

As with other car finance deals, you won't own the car during the period of time before your contract ends. You also won't automatically own it when the contract finishes - you'll have to pay a balloon payment to own the car beyond your contract.

If the predicted balloon payment - the minimum future value of the car - is very close to the actual value of the car when you reach the end of your contract, you will have very little money to roll over to use for the deposit on another car, if you choose not to buy the car you currently have and instead trade it in for a new vehicle. If there isn't any difference, you'll have to come up with the finance for another deposit if you want to start a new PCP finance deal.

There are a few charges that you could face when you hand the car back or trade it in. At the beginning of your finance deal, you will be asked to specify how far you'll drive the car each year. If you go over the agreed limit, you can be charged between 7p-10p for each mile you are over - it's important to carefully check your finance agreement for the exact figure. The future value is also dependent on keeping the car in good condition, so you'll be charged extra to put right anything that's not simply wear and tear damage.

If you're not sure whether PCP finance is the right finance option for you, why not consider Hire Purchase finance? Read more about HP finance here.

How does my credit history affect the interest rate on my finance plan?

If you're wondering whether you'd be able to take out a PCP finance plan due to your credit score, we can assist you. You can compare finance deals from a panel of lenders with your credit rating, from excellent to bad credit, by using our Free Car Finance Check. This will use a quotation search to show your likelihood of acceptance for a finance plan without affecting your credit rating.

Presto Finance Ltd. is a credit broker, and not a lender authorised and regulated by the Financial conduct authority, our interest rates are fixed for the terms of our agreements and are determined subject to status by your credit score. PCP deals are available from 12.9% representative APR.