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Moneyextra.com Dictionary

Car Purchase - Ways of Paying


Car purchase. When you buy a car you can pay for it in one of several ways

  • Pay cash - the best and cleanest option. Not only will you be avoiding added debt youll be in the best position to negotiate a discount.
  • Hire Purchase HP - you pay a deposit perhaps between 10 and 40 and then pay off the debt plus interest in usually monthly or quarterly instalments. The asset car is not legally yours until the last payment is made. HP is sometimes called conditional sale.
  • Bank loan - you arrange a personal loan from a bank building society or other lender and use it to pay for the purchase. Unlike HP from day one the asset is yours. From then on you just need to clear the loan making repayments and interest regularly usually monthly or quarterly. Unlike HP you dont need a deposit.
  • Personal Leasing - Here you dont buy the car but you rent it. The cost usually includes servicing and breakdown insurance and can make sense if youre the sort of person who likes to change vehicle frequently.
  • Personal Contract Purchase - This is a sort of compromise between HP and leasing. When the vehicle is bought the dealer promises to buy it back after set number of years at a pre-agreed price. Alternatively the dealer tells you the price at which you can buy the car outright at the end of a set period of payments. So as you weigh up the deal the "Minimum Guaranteed Future Value MGFV" will be an important consideration.
  • The MGFV is subtracted from the initial purchase price and the remainder is borrowed. Quite often people will use the MGFV as a deposit on the purchase of another vehicle later.

    Always ask the Annual Percentage Rate APR when youre borrowing money see our guide to personal loans and if youre looking to use the vehicle for business talk to your accountanttax adviser about the tax consequences of the different courses of action.

    See Also Moneyextra.com Insurance Service motor insurance making motor insurance work better Rates & Performance section

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    2009-02-17 00:00:00 © Moneyextra.com