Hire Purchase
Simply pay a deposit -the amount is unspecified- then repay the remaining cost plus interest charges by regular monthly premiums over an agreed period and have nothing to pay at the end. Just pay and own.
Lease Purchase
This is the same as Hire Purchase except you may pay a lower monthly payment as a result of having a final payment deferred until the end. At the end of the agreement just pay the final residual and have ownership.
Private Contract Purchase – PCP
Familiar to some of you, particularly if you have purchased your own car previously. Pay a deposit and make equal monthly payments for an agreed period of time with the option of purchasing the car at the end or handing it back. The contract is governed by certain mileage criteria which is set up at the beginning. If you return the vehicle and have exceeded the mileage or the vehicle is damaged over and above normal wear and tear there may be mileage penalties traditionally on a pence per mile basis.
Balanced Payments or Variable Rate Finance
This is a flexible finance package available to private people and businesses. Essentially it operates in the same manner as hire purchase or lease purchase but with the benefit of being able to pay additional lump sums to be repayed with the commensurate reduction in the term of the loan. This form of funding is very popular with those who may expect bonuses or who choose to exercise their share options.
A Balanced Payments financial agreement could change the amount of interest you pay and may either reduce or extend the period of the agreement. This is caused by fluctuations in the Finance House Base Rate which your payments are based upon.
Private and Business Contract Hire
The vehicle is hired to you for a fixed period and a fixed monthly payment. Normally the deposit is small and the monthly instalments are subject to VAT.
This method of finance is very competitive for private and business users, as the funding company reclaims the proportion of VAT in the purchase price of the car.
At the end if the contract the vehicle is simply returned, releasing you of any further concerns or obligations about disposal.