Finance Explained
Buying your vehicle on finance
Maybe you've been saving for a rainy day so that you can pay for your KGM with one lump sum.
But maybe a KGM finance deal appeals and can show you an alternative way of making it happen?
Get down to your local KGM retailer to find the best way that works for you.
How personal contract purchase (pcp) works
A KGM PCP finance agreement may enable you to change your car more often.
Choose your KGM model; agree on your deposit, term and expected annual mileage; We then calculate your car’s anticipated future value at the end of the contract. We deduct this optional final payment from your balance, and your monthly payments are based on this reduced amount. At the end of the contract term you have two choices: 1. Renew: part exchange your vehicle for a new one and use any available equity as your deposit for your new KGM 2. Retain: pay the optional final payment and keep your vehicle
How it works
- Choose your KGM model and your monthly payments are calculated- based on your deposit, term and expected annual mileage
- You pay your regular monthly payments for the set term
- At the end of the contract term you have two choices:
- Get a new car and renew your finance: Part exchange your vehicle for a new one and use any available equity as your deposit for your new KGM
- Keep your current vehicle: pay the optional final payment and keep your vehicle
- Get a new car and renew your finance: Part exchange your vehicle for a new one and use any available equity as your deposit for your new KGM
How hire purchase (hp) works
A more traditional form of finance agreement:
You choose your new KGM, agree how much deposit to pay and your finance term; your monthly payments are then based on your balance plus any interest charged; at the end of the contract when you have made your final monthly payment, the car is yours.
How it works
- Choose your KGM model and your monthly payments are calculated - based on your deposit and term
- You pay your regular monthly payments for the set term
- After making the final monthly payment, the car is yours
How Business Contract hire (bch) works
Business Contract Hire (BCH) is a long-term vehicle lease hire agreement of two to four years, suitable for sole traders, partnerships, and limited companies who don’t want to own the vehicle. It is a popular option with VAT registered companies as they can claim back 50% of the VAT on vehicle payments (100% for vans) and 100% of the VAT on maintenance costs.
With Business Contract Hire, a company pays fixed monthly rentals for an agreed period (usually 24 to 48-months) for the use of a vehicle. At the end of the agreement, the vehicle is returned to the finance provider, leaving them to worry about depreciation values and the disposal of the vehicle.
Contract hire allows a business to concentrate on its core activities while avoiding the financial risk and administrative burden of owning a vehicle or fleet.
How it works
- The vehicle's value - the vehicle’s value is one of the biggest factors to the price. The value is where the cost starts to be calculated, so if you look to lease a low value vehicle, you’re likely to have lower monthly rentals.
- The term - this is how long you want the vehicle for, the most popular choices being between 2 and 4-years. However, there are options from 12-months up to 5-years.
- Your mileage - the higher the mileage on the vehicle, the less it’s worth, so you’ll need to know how many miles you expect to over the term. The lower the mileage, the lower the monthly rental.
- Residual value of the vehicle - the value of the vehicle at the end of the term. When looking at a vehicle, the finance company will predict how much it is going to be worth after your agreement has finished. If it’s predicted that the vehicle will hold its value, then that will have a beneficial impact on the monthly rentals. Because your rental is fixed, if the vehicle depreciated more over the term than predicted, you are not affected.
- Interest rates within the contract affects the total payable. Due to the ever-increasing number of deals and popularity of leasing, interest rates are getting better and better.
- Deposit - over the term there is a certain amount payable. It is then up to you if you want to pay a chunk up front, and the rest over the term. The more you pay up front, the less you pay over the term, meaning a lower monthly rental.
How personal contract hire (PCH) works
Personal Contract Hire (PCH) - also known as leasing - works like long-term car rental. You make set monthly payments to borrow a car for an agreed amount of time and then you simply hand it back at the end of the contract.
If you like to change your car regularly so that you always have the very latest model, leasing could be a far simpler way to stay behind the wheel of a brand-new car than frequently buying in cash and having to sell on your old car yourself.
Personal Contract Hire enables you to effectively rent a new car - normally for two to four years - by making an initial payment, followed by a series of fixed monthly payments. Get to the end of the contract and you just hand the keys back and walk away with nothing more to pay - provided you've stuck to the pre-agreed mileage limit and have kept the car in good condition, with no damage beyond fair wear and tear.
Unlike Personal Contract Purchase (PCP) finance or Hire Purchase, there's no option to buy the car at the end of the contract - no matter how much you may love it. This means that monthly payments for a brand new car may be lower than with finance alternatives - as the leasing company is geared up to sell the car on as soon as you give the keys back - and you could get a more upmarket car for your monthly budget than you might expect.
How it works
- Choose a KGM vehicle that meets your requirements - PCH agreements are available for both used and new cars.
- Decide your annual mileage limit. While higher mileage limits typically mean higher monthly payments, exceeding your agreed mileage limit for the year means you’ll pay an additional fee, so set a limit that’s high enough for your circumstances.
- Decide how long you want your PCH agreement to last. Most finance providers offer PCH deals between 2 and 4-years.
- Make an initial rental payment to secure your vehicle and reduce the remaining monthly payments.
- Begin making fixed monthly payments for your car over the agreed time period. Depending on your agreement, you may be responsible for any additional costs of running your car, such as Vehicle Excise Duty (road tax), insurance, regular servicing and maintenance, so make sure you understand your lease agreement before signing it.
- At the end of the agreement, give the car back to your KGM dealership or finance provider. Unlike other types of car finance, such as a Personal Contract Purchase or a Hire Purchase agreement, there is no option to purchase the car and become its legal owner.
How advanced payment plan (app) works
If you’re planning on financing 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 or to buy the car or return it with nothing left to pay, assuming it’s in good condition and within the mileage limit specified. The benefit of an APP 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.
How it works
- Choose your KGM vehicle
- Pay an upfront fee based on the model's Guaranteed Minimum Future Value (GMFV) and choose the term length
- Pay no lease fees during the agreement
- At the end of the agreement, either:
- Pay the final amount and own the car
- Renew the plan and pick a new model
- Hand back the vehicle