# Vehicle Finance - An Idiots guide



## Iain Pitstop (Aug 29, 2006)

Vehicle Finance is a nightmare at the best of times, so I've tried to write an idiots guide to it.

Whether you are a private individual or a business user, we can provide finance to suit your needs and your budget.

You probably have questions about the best way to fund your vehicle purchase. We'll discuss the options with you; build a profile of your preferences, including how often you typically change your car, so we can tailor the most appropriate finance product for you.

*Finance Rates*

We'll explain to you what our rates mean; clarifying terms like APR (annual percentage rate) and flat rate, so you have a thorough understanding of the options and can make an informed choice.

We are regularly told by clients that they have been offered a flat rate elsewhere. They assume, understandably, that this is the rate that they will be paying, but unfortunately that is not the case. The rate you actually pay is the APR, which is typically calculated over the current UK base rate. So, for example, if you are quoted a rate of 4% and APR is not mentioned, then you will have been quoted the flat rate. The APR, and therefore your monthly payments, will be higher than this.

When we speak to our clients, if they have been offered a quotation elsewhere, the first question we ask is what APR rate they have been quoted. Pitstop only talks APR as this is the amount you actually pay.
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*What is a Balloon?*

A balloon, or final lump sum payment, is a final payment consisting of a percentage of the purchase price of the vehicle, deferred until the end of the agreement.

Typically, the balloon amount may be up to 50% of the purchase price, depending on the age of the vehicle. The balloon final payment on a 36-month agreement can be as high as 55%, and on a 24-month agreement 75%The balloon can be calculated in several ways, but as a rule of thumb it works out at 80-90% of the car's expected market value at the end of the agreement term.

*TYPES OF FINANCE AGREEMENT*

_Hire Purchase_

Hire Purchase offers a straightforward way to spread the cost of your new car. You pay a fixed rate of interest and benefit from fixed monthly payments, making budgeting simple and easy.

You choose the amount of deposit you wish to pay, typically between 10%-50% of the car's price. The remainder of the balance, together with the interest, is repaid over an agreed period (12-60 months).
The benefits of Hire Purchase:
•	Low deposit - doesn't tie up personal or business assets 
•	Control - you decide the deposit, you decide the term 
•	Fixed monthly payment - makes budgeting simple 
•	Flexibility - doesn't compromise your other lines of credit 
•	Assets - you gain ownership of the car 
•	Tax benefits - tax allowances for business users 
•	VAT free - no VAT on payments

_Hire Purchase With A Balloon (Lease Purchase)_

Hire Purchase with a balloon offers lower monthly payments than standard Hire Purchase. Instead, at the end of the agreement, you can make a final lump sum payment (or 'balloon') to purchase the car in full.

It's fixed rate finance - but with a lower fixed monthly outlay since you defer repayment of some of the borrowing. At the end of the agreement you have a number of options including car purchase, refinance, part-exchange or resale.

The deposit you pay is flexible - typically between 10% - 50% of the car's full price. We can offer 0% deposit, please contact us for more details

The deferred balloon element is calculated on the estimated future resale value of the car.

The difference, plus interest, is repaid in equal installments over an agreed period (12-60 months), plus a final balloon payment.

Why consider Hire Purchase with balloon?
•	Low deposit - doesn't tie up hard earned cash !!
•	Lower fixed monthly payments - perfect for budgeting 
•	A better car - lower payments can help you choose a higher specification car 
•	Flexibility - does not compromise your other lines of credit 
•	Assets - you gain car ownership

_Personal Contract Purchase (PCP)_

This relatively new product is very similar to a Lease Purchase However, the final lump sum payment, or balloon is guaranteed. What this means to you is that at the end of the 1-, 2- or 3-year agreement you can return the vehicle for the balloon amount set at the beginning of the agreement. A PCP agreement gives you 3 choices at the end of the contract:

1.	Pay the outstanding balance and keep the vehicle
2.	Part exchange the vehicle and use the money remaining after paying the balance as a deposit on your next car
3.	Hand the vehicle back and walk away

PCP benefits at a glance:

1.	Fixed monthly payments mean easier budgeting
2.	A large percentage of the balance is deferred until the end of the agreement, 
3.	The agreement is not subject to VAT
4.	As the vehicle is an asset on your balance sheet you can claim a write-down allowance against it
5.	Guaranteed residual Value

The downside of a PCP is that the APR% is usually considerably higher to take into account the Guaranteed Future Value

Pitstop will always maintain aggressively competitive packages and terms. Drop me a PM or an email and I'll do my best to help :thumb:


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## 1animal1 (Aug 20, 2008)

Halves and thirds is a benefit of hire purchase Iain...


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## andy665 (Nov 1, 2005)

Halves and thirds is also a feature of PCP as PCP is legally classed as Hire Purchase


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