Finance Explained at W R Davies Motor Group

Our Guide to Understanding Car Finance Options

Are you in the market for a new or used car? At W R Davies Motor Group, we make the journey hassle-free and enjoyable by offering tailored finance packages. Our range includes options like Hire Purchase, Contract Hire, and Lease Purchase agreements.

For a personalised illustration, contact our Sales Advisors and get instant finance quotes on our website! Our quick and simple guide to the terms and phrases you might hear when discussing car finance.

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How to Find Your Ideal Finance Option

If you're unsure about the type of car you want but know your monthly budget, we can help with our handy finance calculator. Set your minimum and maximum monthly payment to discover finance options that suit you.

If you already have a car in mind, search by model for more information. Explore various finance options and tailor them to your needs, including deposit amount, contract length, and monthly payments. It's more affordable than you think!

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Why Choose W R Davies Motor Group?

W R Davies (Motors) Ltd is authorised and regulated by the Financial Conduct Authority (Ref No 307432) for consumer credit purposes. We work with you to find the best finance options, and lenders may pay us a commission for introducing you to them. Rest assured, any commission amounts will not affect your finance agreement terms, all of which are set by the lender.

Ready to drive your dream car? Find your local W R Davies Motor Group here for a personalised car finance plan today!

Additional Resources

Explore our informative videos on car finance principles:

What is PCP car finance?

PCP finance is similar to Hire purchase (HP) but instead of your payments being based on the car’s total value, you pay off its depreciation instead (the difference between what the car is worth now and at the end of the contract)

With this option, you can use the car until your contract ends and at the end of the contract, you have three options.

You can either return the car, pay the resale value, and keep it, or you can use the resale value and put it towards buying a new car. These are the only three options available to you at the end of a PCP contract, so you need to have decided what you’re going to do before the contract comes to a close.

You are likely going to be asked to pass a credit check before you will be accepted for a PCP contract. You’ve got to be able to make these repayments every month and keep in mind that this kind of contract can last up to four years. So, if you don’t think you’re going to be able to keep up with the payments for the entire contract, you might need to consider something else.

There are three simple steps:

1. Your Deposit

Your deposit amount will depend on the agreement with your lender. Most ask for around 10% of the vehicle’s value. This goes towards paying off the depreciation, so the more you can pay upfront, the less you will pay each month.

2. Monthly repayments

Your monthly repayments will pay off the car’s depreciation, Bear in mind your monthly cost will also include interest on top.

3. End of contract

At the end of your agreement, you’ll have three choices:

  1. Pay the balloon payment – this means the vehicle will be yours to keep.
  2. Hand the keys back – once you finish paying off your monthly payments, you can return the car to the lender and walk away.
  3. Get a new car – if your car is worth more than expected, you can put that difference – known as equity – towards the deposit of a new car. For example, if your car was expected to be worth £10,000 but it’s actually worth £9,000, you can put the additional £1,000 towards the deposit of your next vehicle.

What is HP car finance?

Hire purchase often referred to as HP allows you to pay for a car in regular monthly instalments and when buying a car using this finance method means the vehicle is yours once the final payment is made.

A hire purchase is the simplest type of car finance that you can take out. You pay a deposit, usually around 10%, and then you make fixed monthly payments over an agreed period of time.

With hire purchase, the car isn’t going to be yours until after you have made the final payment. What this means, though, is that if you do miss a payment, you could face losing the car as the loan was originally secured against the vehicle. Also, the hire purchase agreements are set up by the dealer, but you can go to a broker to have this arranged if you would prefer. Something else that you need to know is that this works best for new cars as the rates are typically better.

One of the best things about hire purchase is that you are paying a fixed amount monthly, so you know that the payments won’t increase or decrease. This gives you a level of security and allows you to budget it into your calculations without much hassle.

The bad side of a hire purchase, though, is that you don’t own the car until the end of the agreed period. As such, you’ve got to be careful that all payments are being made on time. You also cannot sell the car if you want to. The loan was taken out against the car, and therefore you are going to have to complete the payments before you own the car, and can then sell it on.

How does PCH work?

If you never want to own the car, and you know this from the beginning, then you might want to consider personal contract hire instead of the other finance options such as PCP. If you’re not planning to buy the car at the end of a PCP, then PCH could turn out to be the cheaper option for you.

Same as with the PCP, you are going to have to pass some sort of credit check. It’s likely that you’ll be asked to pay a few months of the lease upfront, and this is usually around three–six months. You’ve got to know what you’re agreeing to and be confident that you’re going to be able to make the repayments for the entire length of the contract.

Once you have the car, you can use it as long as you are sticking to your agreed mileage. If you do happen to go over this, then you will be charged for as much as you go over. However, costs such as car tax are included, so you’re only going to have to pay for the fuel, maintenance, and insurance. Your contract should allow for general wear and tear, but anything beyond this could mean that you face extra charges. To avoid this, just keep it in good condition then, at the end of the agreement, you return the car. It really is as simple as that.

A big advantage of this type of car finance is that if you are someone who doesn’t want to commit to a car, then this is perfect for you. You only have it for the duration of the contract, and then you give it back and move on. But, this can also be a disadvantage if you grow to like the car over the period, because there is no purchase option.

So, now you have all the information about each type of car financing, including how it works as well as some of the advantages and disadvantages, you can start to work out which financing option is going to be the best for you. You can consult a professional if you feel like you need more advice after reading this explanation. Make sure that you check all the information that the lender gives you to ensure it matches up with what you know before you agree to anything.

What is Business Contract Hire?

A Business Contract Hire agreement is a leasing option available on cars and vans. It is open to sole traders, limited companies and partnerships. Under a Contract Hire agreement, the car or van of the lessor’s choice is leased for a set time period at a fixed monthly cost. The agreement will also include a maximum mileage allowance.

The monthly rental fee is based on a number of factors, including the original cost of the vehicle, the length of the contract (again, usually 2-4 years) and mileage that the vehicle is expected to cover. The final monthly cost will also include an allowance for depreciation by the end of the agreement.

Contract Hire agreements will also usually include an optional maintenance package for oil and filter servicing, brake fluid changes etc.

While these are not compulsory, they usually make financial sense, unless you have a good relationship with an existing garage you trust.

At the end of your agreement, you hand the vehicle back. As long as you’ve looked after the vehicle and kept within your contracted mileage there will be no additional fees.

If you need more help, to decide which is the best option tailored to your needs our Sales Advisors are available.

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