You may have come across the term Pay As You Go Car Finance in the past, and you may be confused. After all, it is generally stated that there are four main types of car finance: Personal Contract Purchase (PCP), Personal Contract Hire (PCH), Personal Loan (PL) and Hire Purchase (HP). So, where does Pay As You Go Car Finance enter the picture, and how does it differ from the aforementioned options? Allow us to explain.
Well, Pay As You Go Car Finance is built around a traditional Hire Purchase agreement, requiring an initial deposit payment plus a schedule of monthly repayments. It sound self-explanatory, however, the car is fitted with a discreet GPRS gadget in that you have to pay on time otherwise your finance company can immobilise your car remotely until payments are met. Just like a mobile phone gives you credit that can be topped up per month depending on your usage, the same applies when it comes to PAYG for a vehicle. However, it does not apply that you would be paying, say, £100 one week and £200 the week; it does not work that way. Rather, it essentially acts as a variation on the aforementioned Hire Purchase plan, but with one difference: the inclusion of a black box within the vehicle.
In simple terms, the device operates as a payment reminder system, prompting the user when a payment is due. Other lenders might use the box to limit the vehicle usage and as such it is this black box that will be measuring how much you have been travelling, while notifying you of your preferred monthly driving limit. So, let’s say that you have told the finance company that your planned monthly mileage is around 500 per month. This would then impact a suitable cost based on your suggested figure, and so the black box will store this information to let you know that you can drive up to 500 miles in an average month. Crucially, it also tells you when you are coming up to your limit, which can prove particularly important to know if you still have over a week of the month remaining but if you are right on the agreed threshold. This is rare as most PAYG car finance are tailored around HP car finance and this doesn’t restrict on mileage like PCP deals.
Now, you can go back to the finance company and agree on a new, increased monthly amount if you recognise that the planned figure is simply too restrictive. Alternatively, you may find that you are not driving as much as you expected, and after a while, you may try to have a chat about bringing the threshold down a notch. Whatever the case, though, the black box acts as your reminder about incoming payments, and the mileage parameters that you have agreed to. It basically means that you can keep your costs down so long as you stick to the planned monthly limit, because you have determined that you shouldn’t need to drive more than a set amount of miles every four weeks, and barring a change in the contract as agreed by your finance company, this will save you money in the long-term, which is why a lot of motorists go for this option.
Learn more about Pay As You Go Car Finance by contacting our sales team who will discuss all the available finance options that will suit your needs.
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