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The evolution of vehicle funding

Its been interesting working in the motor trade for the last 6 years and seeing the evolution of how people purchased their cars. 

It started off with the traditional 'cash is king' theory where you would get more discount if you was offering cash to the dealer. 

Then it was on to Hire Purchase where you could put in whatever deposit you liked and financed it typically anywhere between 2 and 5 years. You paid this on a fixed monthly payment until the car was paid for. You owned the car for the entire contract and you had an asset which was yours at the end. 

Personal Contract Purchase was next. This enabled you to get a newer, better car for a lot less per month. The deposit was flexible (the manufacturer often put a 'deposit contribution' on top of your deposit as well). You chose your mileage per year and the terms varied anywhere between 2 and 4 years. After paying your fixed monthly payments at the end you would have what's called a GMFV/ballon payment (Guaranteed Minimum Future Value) and there are four choices: 

1. Hand the keys back to the finance company (any excessive damage and mileage would be charged for) 
2. Re-finance the GMFV until you have full ownership (you could do this with the bank or with the manufacturer) 
3. Pay off in a lump sum and have ownership 
4. Swap in for a new car (if your GMFV was £5000 and your car was worth £6000 you could put that £1000 deposit towards a new one) 

This was a flexible way of financing a vehicle as you had the chance to own the car or alternatively get into the cycle of getting a new car every few years. 

Last but not least is Personal Contract Hire (PCH). I believe this is the best and most cost efficient way of paying for your new car. 

Your deposit is flexible and usually consists of an amount of payments upfront. You would then pick your term and your anticipated mileage per year. 

Example - 6 + 35 = £200 - Your initial payment of 6 payments upfront would be an initial rental of £1200, followed by 35 monthly payments of £200. 

At the end of the term you would simply hand the keys back and start again on a new one. You would however get charge for any excess mileage and excessive damage. 

Personal Contract Purchase (PCP) has been great for the last few years getting people in much better car than maybe they could afford. Going back a few years ago you would often have equity to put on to your next car. Working in the dealership world over the last few years there was only very few occasions people had equity due to a flooded market and more and more people funding via PCP. I believe PCP has had its day and Personal Contract Hire (PCH) is becoming more and more popular. Most of the time it is cheaper than Personal Contract Purchase (PCP) and the terms are usually less, meaning you can have a new car for cheaper and more regularly. 

How do you purchase your vehicles and which funding method do you think is best? 

It will be interesting to see where the next evolution of vehicle funding will take us....

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2nd of April 2019

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