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What’s the best car finance option for your needs?
What’s the best car finance option for your needs?

With the vast majority of private car purchases in the UK being made using finance plans, now could be a great time to explore easy, cost-effective routes to driving away with a great deal for a new car.

According to the Finance and Leasing Association, the leading trade body for the UK motor finance sector, 94.5% of privately-purchased new cars were financed by its members between November 2019 and November 2020.

This figure is naturally expected to drop slightly over the next reporting period to reflect a fall in new business volumes due to the ongoing economic uncertainty, travel restrictions and the closure of many showrooms caused by the Covid-19 pandemic. However, it shows there is strong UK market interest in car finance options – making it a very viable option for anyone looking to purchase a new car.

In response to this demand, Subaru has recently added Contract Hire plans to its selection of attractive finance offers on Subaru vehicles. Depending on whether or not you want to own the car at the end of the leasing period, you can now choose to drive a new Subaru by agreeing a Personal Contract Purchase, Personal Contract Hire or Business Contract Hire plan with your local dealership.

What are the essential differences between these three common car finance plans? Let’s take a closer look…

What car finance options are available?

The clue typically lies within the name of the type of agreement.

A Personal Contract Purchase (PCP) finance plan means that you have the option to purchase the car at the end of the contract.

In contrast, a Personal Contract Hire (PCH) or Business Contract Hire (BCH) plan is a straightforward leasing agreement, with no option to purchase the vehicle at the end of the agreed hire term.

So which car finance plan is best suited to your specific needs? That all depends on what you’re looking for.

The ability to opt for outright ownership

Are you interested in the potential of spreading the initial payments for a new car over a set period and then paying off the remaining fee a few years down the line to complete the purchase of your new car? Then a PCP plan could be a great choice for you.

PCP is designed to offer a faster and more easily budgeted route to car ownership. It means you don’t need to fund the full price of a brand new car upfront and can spread payments in a more affordable way – while still jumping straight behind the wheel of a new vehicle.

This type of agreement essentially keeps your monthly repayments low by deferring a significant proportion of the total amount of credit to an optional final repayment at the end of the agreement. It typically covers a 3-year period, with repayments at a fixed rate of interest.

Final options with Personal Contract Purchase

At the end of the PCP leasing term, once you have paid all of the regular monthly repayments, you can choose one of three options:

  • Pay the optional final repayment amount and own the car outright.
  • Part-exchange the vehicle for a new one.
  • Return the car to the finance company without paying the optional final repayment (subject to the car being in a good conditon).

Lease-only for an easy ‘new car experience’

For motorists who would prefer to change their vehicle for a new model on a regular basis, a lease-only Contract Hire agreement could be a more straightforward option. This route provides a convenient, fixed-cost way to drive a new car in return for affordable monthly payments – it’s effectively a long-term hire arrangement.

You get to enjoy all the benefits of the ‘new car experience’, without any of the considerations associated with depreciation or having to sell the vehicle at a later date.

Ideal for both existing and new customers, the availability of Personal Contract Hire (PCH) and Business Contract Hire (BCH) plans provides a valid choice for individuals and businesses alike.

Personal Contract Hire – for individuals

With a PCH agreement, monthly payments will tend to be a little cheaper than with PCP finance, but the length of the plan is usually 4 years. You simply pay an initial rental fee upfront, followed by fixed monthly payments over the agreed contract length to make budgeting easier. This type of finance is ideal for people who don’t want the expense of outright purchase, but would like to enjoy worry-free motoring.

When the contract ends, you simply return the vehicle to the finance company (subject to ‘reasonable wear and tear’ expectations). Most PCH finance also comes with an annual mileage limit. If you’ve exceeded this allowance, you’ll be required to pay an additional charge for excess miles driven.

Benefits of Personal Contract Hire

  • Monthly payments tend to be cheaper than PCP and are fixed to make budgeting easier.
  • You don’t need to worry about ownership, depreciation or selling the vehicle.
  • At the end of the agreement, simply return the vehicle (in good condition).
  • Gives you the freedom to change vehicles and drive a new car every few years (once your contract has ended).
  • Road fund licence is included for the duration of the agreement.
  • An optional maintenance cost package may be included – please speak to your dealer directly to discuss this.

Business Contract Hire – for businesses and sole traders

A BCH agreement is very similar to the PCH option – but is available exclusively to VAT-registered business owners, sole traders, partnerships and limited companies. It comes with low-cost initial payments and the regular monthly payments typically become even more affordable, as businesses are allowed to claim 50% VAT back.

At Subaru, we find that our finance offers for businesses are particularly well-suited to the often remote, rugged and adverse weather driving needs of vets and farmers, but they’re equally beneficial to many other business owners who value the outstanding safety, capability, all-round performance and reliability delivered by Subaru vehicles.

Benefits of Business Contract Hire (BCH)

  • Fixed monthly payments for easier budgeting.
  • You don’t need to worry about ownership, depreciation or selling the vehicle.
  • Low-cost initial payments – with added tax benefit that you can claim 50% VAT back.
  • At the end of the agreement, simply return the vehicle (in good condition).
  • Gives you the freedom to change vehicles and drive a new car every few years (once your contract has ended).
  • If your business leases instead of buying, money won’t be tied up in a depreciating asset.
  • Road fund licence is included for the duration of the agreement.
  • An optional maintenance cost package may be included – please speak to your dealer directly to discuss this.

Which finance option is right for you?

There’s no one-size-fits-all answer to the question of which car finance option might be the most appropriate for your particular needs.

Speak to your local dealer to explore your options and get a firm finance quote. Then, once you’re sure you can continue to make the contracted payments even if your circumstances change, simply select the route that best suits your needs – and prepare to enjoy that new car experience!

And don’t forget that you might also want to consider the merits of the special Subaru 50/50 Finance offer, which is available on selected models.

View latest finance offers

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