Car finance: what is an Advance Payment Plan?

  • Doesn’t feature monthly payments like other finance formats
  • Works for those with a large deposit but not enough to buy the car outright
  • Driver can buy the car or hand it back at the end of the contract

If you’re planning to finance your next car but don’t like the idea of having to make payments every month, an Advance Payment Plan (APP) could be for you.

Like most PCP deals you have to put down a deposit – around half of the value of the car in this case – and at the end of the contract you can choose to make a final payment to buy the car or return it with nothing left to pay (provided it is in good condition and within the mileage limit specified).

Drive a new car without monthly payments

Advance Payment Plans are available from a handful of manufacturers including Jaguar, Land Rover, Fiat and Jeep. These are available over 13 to 37 months with Jaguar and Land Rover and 20 to 36 months with Fiat and Jeep.

The benefit is that you have less to pay upfront than when buying the car outright, but don’t have to commit to regular monthly payments as you would with a PCP scheme. You still retain the choice to buy the car or hand it back until the contract ends, giving you plenty of time to decide whether you want to keep the car.

PCP deals can offer greater discounts

If you have a deposit of around 50 to 60 percent of the car’s value, you could still opt for a PCP deal, pay the smaller deposit and simply put the remaining money aside for monthly payments. As PCP plans are more established, a number of discounts are available.

Take the Jeep Renegade; opt for a £24,495 model on a two-year, zero-percent APR PCP deal and you’ll have to stump up a £4,455 deposit and make monthly payments of £199. Over the two years you’ll pay just £9,231 – thanks to a £1,390 list price saving and a £1,500 deposit contribution.*

While zero-percent APR is available on Jeep’s Advance Payment Plan too, such discounts are not. As a result, you’d have to pay £12,014 upfront as a deposit on a £23,995 Renegade – making it much more expensive than PCP for a similarly priced version, whether you hand it back at the end of the contract or buy it outright.*

£2,000 premium for APP over Hire Purchase

It’s a similar story comparing Jeep’s APP and Hire Purchase plans. While a £2,000 deposit contribution is available with the Hire Purchase option on the Cherokee off-roader, this isn’t offered on the APP.

The Hire Purchase plan also spreads the cost over three years rather than two as with the APP, cutting monthly payments. Put the APP deposit towards the Hire Purchase option and it would cover the deposit and first 20 monthly payments – giving plenty of time to save up the cash to cover the remaining payments.

Lower interest charges with Advance Payment Plans

One benefit of paying a large deposit upfront with APP schemes is that the size of loan that interest is applied to is reduced – although this doesn’t affect zero-percent APR schemes. However, Jaguar does charge two percent higher APR for its APP offers compared with PCP and Hire Purchase equivalents, which more than counteracts any benefit.

Look to purchase a Jaguar F-Pace through finance, therefore, and you would pay around £1,000 less interest by opting for the Hire Purchase option over the APP option.*

Advance Payment Plans not the best value

Advance Payment Plans don’t offer the benefit of small upfront payments that PCP and PCH deals typically provide those who want to hand their car back at the end of the contract.

Nor can they match the value for money of Hire Purchase and low-interest, high-discount PCP deals for drivers who want to buy the car outright when the contract ends. As a result, most drivers would be better served by putting aside money to cover monthly payments if they are concerned about budgeting. If you’re considering a loan, check out how much you could afford to borrow with our finance tool.

Want to find out more about car finance? Take a look at the articles below:

Car leasing vs car finance: to own or not to own

Car finance explained: what is PCH/Leasing

Eight signs of a great car finance deal

The seven deadly sins of car finance

Top cars for less than £90 per month

*Deals are correct at time of publication. Everyone’s financial circumstances are different and credit is not always available – Parkers cannot recommend a deal for you specifically. These deals are indicative examples of some packages available this week.