The small print of dealer finance

  • A closer look at finance deals and what to consider when buying a new car
  • Free insurance and zero percent APR look tempting but there are restrictions
  • Are you considering buying your next new car on a PCP deal?

Most of us are pretty sceptical when it comes to finding a good deal.Experience and common sense teach us to expect that things aren't always what they seem.

But it's easy to be taken in by signs for zero percent APR deals, low monthly payments or even free fuel and insurance. But there will be limitations and exceptions so its important to know all the facts before you sign on the dotted line.

A quick explanation

There are a variety of finance methods here in the UK which will be offered to you. The main three players are PCP, PCH and HP. 

HP (Hire Purchase)

HP works very similar to a bank loan, you make monthly payments and when you finish paying off all the credit, the car is legally yours. HP is almost always the cheaper finance method if you want to own the car at the end.

PCP (Personal Contract Purchase)

PCP is very similar to HP in that you also make monthly payments, however they’re almost always lower because at the end of the term you can either pay a balloon repayment to buy the car or hand the car back. You can lower the price of the car by laying down a deposit, although some finance packages offer you the car without paying anything initially.

PCH (Personal Contract Hire)

PCH is a form of leasing, you will pay a monthly sum for the loan of the car over an agreed period and hand the keys back at the end – you may also have maintenance and servicing built into the cost. With PCH there is no option to own the car at the end of the term and you can run the car for shorter periods, ideal if you like changing cars often.

Once you've decided on the right type of finance for you, make sure you visit our finance section for a quote - we work with over 21 lenders to give our customers access to over 100 different lending options.

Mileage restriction

One of the main restrictions which will be in place on your finance deal is the amount of miles you can travel during the term – regardless of whether or not you are thinking of buying the car at the end.

Until the final amount is paid or the keys are handed back, the finance company is the legal owner so they can place any restrictions on the deal to keep their asset in tip-top shape.

At the start of the loan the lender will give you a guaranteed price for what the car will be worth at the end of the term and you agree to pay the difference between its sale price and its price for resale back to the dealer. As mileage is one of the main elements which will affect the resale price it’s important at the beginning of the term to get your annual mileage right – especially since charges if you go over can be significant.

What is fair wear and tear?

You have a responsibility to return the car at the end of the term to the finance company in good condition, and this is stated in your financial agreement. The car will be inspected for damage at the end of the contract and anything classed as ‘excessive wear and tear’ may incur a penalty to repair.

The British Vehicle Rental and Leasing Association (BVRLA) created a guide to what constitutes fair wear and tear because after three or four years of ownership, some marks are inevitable. Small scuffs on the wheels and bumpers, small stone chips on the bodywork and slight wear in the interior is acceptable though dents, paintwork damage or rips and tears in the cabin are likely to incur charges.

It’s important that you service and maintain your car in accordance with the manufacturer and leasing companies’ guidelines too, some PCP deals will included servicing and maintenance costs.

Insurance cover

More and more finance packages are offering a one-stop-shop for all your car costs into one monthly payment, some of which can include insurance and even fuel. 

There will be age restrictions for insurance, usually under 18s are exempt and depending on the vehicle sometimes under 21s or under 30s too. Those aged over 70 could find themselves excluded also.  

Some manufacturers will ask for a minimum number of years’ worth of experience driving and others may stipulate a certain amount of no claims discount to be applicable for the cover.  

It’s important to double check all the details are correct if you do opt for the insurance to be included and look out for any restrictions on your policy like a courtesy car or free windscreen replacement cover.  

Zero percent APR

No interest deals are very tempting for obvious reasons, but most come attached with high deposits. If you have a reasonable amount of cash ready to put down on a car  then you should be shopping around for the best deals, if you don’t then these particular deals will be much harder to find.

Check out our latest deals at our weekly deal watch here

Final deposits

The final deposit amount is how much is left to pay at the end of the contract if you decide to take ownership of the car. All PCP deals have a final deposit amount option and if you pick a car which holds its value well, they can usually be high.

Even if you’re not considering owning the car at the end of the contract right now, it’s worth considering saving some money through the term incase you change your mind.

For more on the pros and cons of car finance, read our article here. 

Click here to visit our car finance section for a simple, affordable and trusted service allowing you to finance the car you want at the best possible price.

Don’t forget to check out our Cars for Sale section for the latest deals on new and used cars.  

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