Purchasing a used car is a significant commitment regardless of how you pay for it, but fortunately, it doesn’t have to be paid in full upfront. Because of the common use of car financing, paying for your next pair of wheels on a monthly basis is the norm, allowing you to affordably drive the vehicle of your choice.

There are numerous ways to spread the cost of a used car, so it’s critical to know which is ideal for you to choose based on your lifestyle, your financial situation, and your attitude toward car ownership.

Let’s examine the various used car financing options.

Personal Contract Purchase (PCP)

A well-liked and somewhat familiar method of financing used cars. You will typically make an initial deposit and then monthly instalments. The monthly payments will stop once the pre-arranged credit period expires, and you will then have the choice of purchasing the vehicle.

There are 3 stages to taking out PCP. Putting a deposit down first. The more you put down, the less you’ll have to repay over the course of the monthly payments. Stage 2, Understanding the amount you’ll be borrowing. The sum is calculated by subtracting your deposit from the amount the car will decrease in value over the course of the contract. Then, together with any interest, this will be paid off in regular monthly instalments. Lastly, you must make a decision regarding what to do at the end of the term. You’ll be given three choices at the end of the term. Pay the remaining money specified at the beginning of the contract to make the car yours; once cleared, the car is yours. Return the car with no further fees due, subject to any additional costs (e.g. damage, exceeded mileage limit). Start a new agreement on a new car after trading in the old one.

Hire Purchase (HP)

In an HP agreement, much like a PCP, you make a down payment on a new or used car with the intention of paying off the remaining balance through a series of monthly instalments. In contrast to PCP, however, you will own the car at the end of an HP agreement. The loan is also secured by the car, which serves as collateral.

Again, there are three steps involved in signing an HP agreement. Putting down a deposit first. Once more, the more money you put down now, the less you’ll have to pay back over the course of the loan. In the second stage, affordability plays a key role in determining how long it will take you to pay off the value of the car less your deposit. At the end of the term, the car is finally yours! Here, you formally get possession of the car. You can also trade it in for a different model if you’d like to upgrade.

Lease Purchase (LP)

By allowing you to lease a car for a predetermined period of time and agreeing to make a balloon payment at the end to make the car yours, a lease purchase is a more economical option to finance a car in the short term.

Initially, a down payment is made, and then regular payments are made over a specified period of time. Similar to PCP, there is a balloon payment due at the conclusion of the period that lowers the monthly payments overall. Contrary to PCP, you are required to make this balloon payment or refinance it.