Few people can afford to buy a car outright and most people need a large deposit to get a decent monthly price on a finance option, but what do you do if you can’t afford a deposit and definitely don’t have enough to buy a new car outright? With hire purchase out of the window, you still have two options to have a great car. You can either, hire one on a contract hire agreement or you can purchase one on a personal contract purchase. Both are ways to lease a new car rather than drive around in something that may or may not see you through the first six months of ownership.
Contract Hire Agreement Pros and Cons
This type of agreement is great if you always intend to drive a fairly young car and are not too worried about building equity. Most agreements are two to four year contracts that mean you are committing to making payments on the vehicle for the duration of the contract. You have no investment in the vehicle and at the end of your lease contract, you simply hand the car back to the leasing company.
Here’s the Good and the Bad:
- Your monthly payments are unaffected by interest rates, which means you can accurately budget for your car over the period of the contract.
- A very low deposit is required when compared to a deposit for a finance agreement that is part of a hire purchase.
- The monthly car lease payments are usually cheaper than paying a car loan.
- Some maintenance is included with your payments and other options may be available.
- You can update your car at the end of the agreement without the need to sell your old car.
- You never actually own the car.
- You will often have mileage limits that can cost you dearly if you go over the agreed amount.
Contract Purchase Agreement Pros and Cons
This is very much like a hire purchase agreement most garages offer with new cars. It gives you a reduced monthly payment when compared to a hire purchase agreement that sees you spread payments over the term of the HP because the contract purchase lease means you need to buy the car outright with a full and final large payment. This is fine if you intent to take out a loan to pay off the remaining balance or you anticipate being able to save enough to make a large payment, which is usually thousands of pounds.
Here’s the Good and the Bad:
- Has many of the same advantages as a lease agreement above with low and fixed payments, with the option to return the car at the end of the agreement instead of making the final payment.
- Cars update and models change frequently, so you don’t need to stick with the old model if that’s what happens at the end of your payment term.
- Mileage is still an issue, especially if you intend to hand the car back instead of making the final payment.
- If you do decide to keep the car at the end of the contract, then you could have paid more than a similar hire purchase agreement because of the final lump sum.
Steve Harper provides personal car leasing advice to customers in the UK and has worked on business, fleet and contract hire posts for more than ten years.