The buzz expression in motoring finance is Personal Contract Plans or PCPs. Most of the car companies are now providing them through their banks in an effort to get customers into new cars at competitive finance rates.

The Personal Contract Plan is a type of hire purchase agreement. Firstly, you pay a deposit, which can be an existing car that you trade in. It can up to 15% of the value of the new car. You then agree a monthly repayment rate for a period of time.

You also agree a usage rate, an agreed number of kilometres over the period of the agreement.

replacement

The car company agrees to take back the car in an agreed condition and will offer you another new replacement car in three years without the need for a fresh deposit.

This is provided by the equity that you have in the car in three year time, based on an agreed value for the car called the guaranteed minimum value of the car at the time the car was bought.

You can the car outright after the three years or opt for a new car without a need for a deposit. This option may not suit high mileage drivers as the car companies will charge extra for kilometres covered over the agreed amount. You need to check out the details carefully between the finance offers. The PCP option is cheaper on day one, but you have no car in your possession at the end of the period. Hire purchase deals are still available from some of the car finance companies. Remember that you do not own the car until the final payment has been made.

Always consider the credit union as a source for new or second-hand car finance. They are local and the money is paid back on the basis of a declining balance and you own the car.