Buying a car is an exciting milestone, but navigating the complex world of auto financing can be overwhelming. Traditional financing options like loans and leases often have fixed monthly payments and rigid terms. However, a more flexible and hassle-free alternative is gaining popularity – the Balanced Payment Plan.
In this blog post, we will delve into the world of Balanced Payment Plans, explaining how they work, their advantages and disadvantages, and how to determine if it’s the right fit for you.
- What Is Balanced Payment Plan
- Advantages
- Disadvantages
- How Does Balanced Payment Plan Work
- Is Balanced Payment Plan Right For You
- The Benefits of Using a Finance Broker
What Is Balanced Payment Plan
A Balanced Payment Plan, also known as a Variable Rate Hire Purchase, offers the benefit of fixed monthly repayments at a variable interest rate.
As the rate increases or decreases over the contract period, so does the interest you pay. Depending on the agreement, lenders track this increase or decrease against either the London Interbank Offered Rate (LIBOR) or bank base rates. At the end of the agreement, any variation in interest rates is reconciled and settled as either a credit to you or a charge.
Balanced Payment Plans come with the option of a balloon payment, which helps reduce the monthly repayments by deferring a large portion of the car’s cost to the end of the agreement.
Where a Balanced Payment Plan truly benefits you is if the interest rates fall over the term of the agreement and you end up with a credit payment at the end.
✅ Advantages
- Lower Deposit Requirements: There are often lower requirements for deposits.
- Lower Monthly Payments: With a balloon payment option, you can reduce your monthly repayments by deferring a large portion of the car’s cost to the end of the agreement.
- Early settlement: You can take advantage of no penalty charges for early settlement or lump sum payments.
- Potential Savings: If the interest rates fall over the agreement period, you may save on the overall finance cost.
- No VAT: There are no VAT charges on Balanced Payment Plans.
- Fixed monthly payments: You get the benefits of fixed monthly payments, which make budgeting more manageable, but with the added benefit of potentially saving if interest rates fall.
❌ Disadvantages
- Higher Risk: There is the risk that interest rates increase and the overall cost of finance increases.
- End-of-Term Flexibility: Unlike other finance options like PCP, you don’t have the same flexibility to return the car at the end of the agreement.
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How Does Balanced Payment Plan Work
- Choosing the car you want to buy: You choose the car you want to purchase.
- Down Payment: To start a Balanced Payment Plan, you make an initial down payment, usually equivalent to a few monthly instalments. This amount reduces the overall cost of the car you need to finance.
- Balloon Payment: Choose if you would like to include a balloon payment and benefit from lower monthly payments. However, remember that, unlike with a PCP agreement, you don’t have the option to hand back the car at the end of the agreement, and you will need to pay the balloon payment.
- Monthly Payments: You pay fixed monthly instalments during the agreement term.
- End of Agreement: At the end of the term, any fluctuation in the interest rate is calculated and either charged or credited back to you.
Is Balanced Payment Plan Right For You
There is an element of risk with Balanced Payment Plans as they are influenced by the rate of interest. Due to this element of risk, this finance product is not widely available to anyone.
However, if you understand investing and the fluctuations in interest rates, Balanced Payment Plan could be right for you.
With this knowledge, you can understand the market enough to predict a reduction in interest rates so that the amount of finance to pay reduces over the agreement period.
Who are Balanced Payment Plans available to?
- Limited Companies / LLP’s
- Partnerships
- Sole Traders
- Directors
- High Net Worth Individuals
The Benefits of Using a Finance Broker
Applying for Balanced Payment Plan through a car finance broker can offer several benefits compared to approaching lenders directly. Here are some advantages of using a car finance broker for Balanced Payment Plan:
1. Access to Multiple Lenders
Car finance brokers work with multiple lenders, which means they can access a wide range of finance options and help you find the most suitable terms and competitive interest rates. Instead of approaching each lender individually, a broker can streamline the process by presenting you with multiple offers.
2. Expert Guidance and Support
Car finance brokers are experienced professionals who understand the intricacies of the loan application process. They can provide expert guidance and support throughout the process, helping you navigate through paperwork, explain complex terms, and answer your questions. Their expertise can save you time and effort while ensuring you make informed decisions.
3. Tailored Solutions
A car finance broker takes the time to understand your specific financial situation, needs, and preferences. They can then search for loan options that align with your requirements. Considering your credit score, income, and budget can help you find a PCP agreement that suits you. This personalised approach increases the chances of securing a loan that fits your needs.
4. Time and Effort Savings
Instead of spending hours researching different lenders and comparing loan terms, a finance broker can do the legwork for you. They have established relationships with various lenders and can quickly identify the most suitable options based on your criteria. This saves you time and effort, allowing you to focus on other car-buying aspects.
5. Negotiation on Your Behalf
Car finance brokers are skilled negotiators who can leverage their relationships with lenders to secure favourable terms on your behalf. They can negotiate interest rates, loan terms, and fees to obtain better loan conditions than you could achieve. This can result in cost savings over the loan term and increase the overall affordability of the Hire Purchase agreement.
6. Assistance with Complex Situations
A car finance broker can be beneficial if you have a unique financial situation or credit challenges. They have experience working with clients with bad credit, limited credit history, or other complexities. A broker can guide you in presenting your case to lenders, increasing the likelihood of approval and finding a suitable solution.
7. Seamless Application Process
Applying for Hire Purchase through a car finance broker streamlines the application process. They handle the paperwork, documentation, and communication with lenders, ensuring everything is completed accurately and efficiently. This reduces the chances of errors or delays that could impact your loan approval.
Get in touch and let us save you time, money and effort getting you the car of your dreams.
info@dorsiafinance.co.uk | 01522 420 420
