The truth about why finance is beating cash when getting a new car
In the past, cars were purchased by drivers saving up for a long period of time and purchasing a car outright with cash. This is why you saw advertisements for a Ford Fiesta being sold for £13,000. However, things have changed for the better. You no longer have to save up for that single purchase.
Cars preceded the way of the gym and Netflix with their monthly payment systems. You can purchase your new car through car finance, which allows you to pay a monthly amount for an agreed period of time. This means you can get a car quicker than you would if you had to save up.
This has resulted in the advertisements of cars changing dramatically in recent years. You no longer see that full price advertised. Instead, you see the monthly cost advertised, so a Fiesta could be advertised as from £180 a month for a certain length of time.
Why finance is better for today
Car finance has seen a massive rise in popularity in recent years and overtook cash purchases as the most popular way of acquiring a car. This is because of the ease and flexibility offered by car finance that you do not get with purchasing a car outright.
Not everyone can afford to purchase cars outright. Some do not even have the funds for a deposit. However, that doesn’t mean they cannot afford to get a car. This is the same for businesses. Brand new start-ups or small businesses who have been running for a few years do not have the funds to purchases a whole fleet of cars outright.
This is why car finance gives businesses that flexibility.
How business car finance works
Businesses always look looking for new ways of affording the essentials for their business at a more affordable amount. This is why car finance has become very attractive for them.
Business car finance works by the business choosing the car they want, followed by the placing of a deposit. Once the deposit has been paid, you pay an agreed amount per month for an agreed period. This period usually stretches between 24-48 months, with some reaching the full length of 60 months.
Depending on which finance agreement is chosen to be packaged with your chosen car, you will either be able to own the car or hand the car back. This flexibility is great for businesses because if it turns out you don’t need as large a fleet as you originally planned for, you can hand a selection of the cars back with ease.
Business Hire Purchase
Business Hire Purchase is the traditional form of car finance. It works by you paying the deposit followed by those monthly payments and by the end you own the car. There is no additional charge at the end of the agreement because you have covered the value of the car over the course of the agreement.
Business Contract Purchase
Business Contract Purchase offers you more flexibility than the Hire Purchase agreement. The basics are the same with you paying a deposit followed by monthly payments. However, the difference is the balloon payment at the end of the agreement.
This balloon payment is known as the Guaranteed Minimum Future Value, which calculates the estimated value of the car at the end of the agreement. This is because with a Business Contract Purchase, you do not pay off the value of the car with the monthly payments, but the value of the depreciation that affects the cars over the duration.
This means that by the time the agreement ends, the car’s value has depreciated, meaning the GMFV will cover the remaining value of the car. In order for the business to take ownership of the cars, you must pay off that balloon payment.
If as a business, you choose to not pay that payment, you can return the car to the lender and move on. This allows you to have the flexibility of reducing the size of your fleet without an additional cost or hassle of selling the cars on later at a reduced price.
How should businesses purchase their cars?
Big businesses can afford to buy cars outright because they have huge funds at their disposal. However, for start-ups, small and medium-sized businesses, they need to be more cautious with their available funds. This means that they need to find another way of purchasing cars without buying them outright.
Car finance, whether it be Hire Purchase or Business Contract Purchase offers businesses those different avenues. If you are looking for a fleet of cars to finance for your business Hippo Motor Finance offers you the opportunity to purchase cars and finance deals in one neat package from them. Simply enquire with them with your budget and an idea of the cars you want and their dedicated team will do the hard work.
