Discover our range of finance & insurance services to suit your needs at Mercedes-Benz Hertfordshire.

Dealer finance in the UK refers to a type of financing option offered by car dealerships to customers looking to purchase a vehicle. It's also known as car dealer finance or dealership financing.

Dealer finance allows buyers to obtain a loan directly from the car dealership to finance the purchase of a vehicle. Instead of obtaining financing from a bank, credit union, or other financial institution, the buyer can work with the dealership's finance department to secure the necessary funds.

There are different types of dealer finance options available, including:

Hire Purchase (HP)

With HP, the buyer pays an initial deposit (typically around 10% of the car's value) and then makes regular monthly payments over an agreed-upon term (usually between 12 and 60 months). The buyer technically hires the car until the final payment is made, at which point ownership is transferred.

Personal Contract Purchase (PCP)

PCP is similar to HP, but the monthly payments are generally lower since they only cover the car's depreciation over the contract term, rather than the entire cost of the vehicle. At the end of the contract, the buyer has the option to either make a final balloon payment and keep the car, return the car, or use any equity in the car as a deposit for a new one.

Personal Contract Hire (PCH)

PCH is essentially a long-term car rental. The buyer pays a fixed monthly amount to use the vehicle for an agreed-upon period (often 2 to 4 years). At the end of the contract, the car is returned to the dealership, and the buyer has no ownership responsibilities.

Dealer finance can be a convenient option for some buyers, as it allows them to handle the entire car buying process (including financing) in one place. However, it's essential to carefully review the terms and conditions, interest rates, and any additional fees associated with dealer finance, as it may not always be the most cost-effective option compared to securing financing from other sources. It's always a good idea to shop around and compare different financing offers before making a decision.

Hire Purchase

Selection of the car

The buyer chooses the asset they wish to purchase, such as a car. The price of the asset is negotiated between the buyer and the seller (typically a car dealership or retailer).

Initial Deposit

The buyer pays an initial deposit upfront, which is a percentage of the asset's total cost. This deposit can range from 10% to 20% or more of the asset's value. The higher the deposit, the lower the remaining balance and the subsequent monthly payments.

Monthly Payments

After paying the initial deposit, the buyer is required to make regular monthly payments over the agreed-upon term. These payments are typically fixed for the duration of the contract, making it easier for buyers to budget their finances.

Interest Charges

The monthly payments include both the repayment of the principal amount (the original cost of the asset) and the interest charges. The interest is the cost of borrowing the money from the financing company or dealer, and it is spread over the term of the hire purchase agreement.

Ownership

Unlike some other financing options, the buyer does not gain full ownership of the asset until the final payment is made. Throughout the repayment period, the buyer is essentially hiring the asset from the finance company or dealer. Once the final payment, including interest, is made, ownership of the asset is transferred to the buyer, and they become the outright owner.

Termination

If the buyer encounters financial difficulties and is unable to continue with the payments, they can terminate the hire purchase agreement by returning the asset to the finance company or dealer. This process is called "voluntary termination," and it's subject to certain conditions, including having paid at least half of the total amount due.

Responsibility and Upkeep

While the buyer is making payments, they are responsible for the upkeep and maintenance of the asset. This includes paying for insurance, taxes, and any necessary repairs.

Hire Purchase can be an attractive option for individuals who want to spread the cost of a significant purchase over time without having to pay the entire sum upfront. However, it's crucial for buyers to carefully read and understand the terms and conditions of the hire purchase agreement, including the interest rate and any potential fees, before committing to the purchase.

Personal Contract Purchase (PCP)

Personal Contract Purchase (PCP) is another type of car financing arrangement that allows individuals to purchase a vehicle through monthly installment payments. PCP is quite popular in the UK and other countries, as it offers flexibility and potentially lower monthly payments compared to traditional hire purchase or car loans. Here's a detailed explanation of how Personal Contract Purchase works:

Selection of the Vehicle

The buyer selects the vehicle they want to purchase. PCP is commonly used for new or used cars, but it can also apply to other assets with a predictable depreciation rate.

Agreement Terms

The buyer and the finance company (often the car dealership) agree upon the contract terms. This includes the length of the agreement (typically 2 to 4 years) and the maximum mileage allowed during the contract period.

Deposit

The buyer pays an initial deposit upfront, usually between 10% and 20% of the car's purchase price. The higher the deposit, the lower the monthly payments will be.

Monthly Payments

After the deposit, the buyer makes fixed monthly payments over the agreed-upon term. These payments cover the depreciation of the car's value, not the entire purchase price, which makes the monthly payments lower than they would be under hire purchase or traditional car loan arrangements

Guaranteed Future Value (GFV)

The finance company calculates the Guaranteed Future Value (GFV) of the car at the end of the contract. The GFV is an estimate of the car's worth at the end of the agreement, taking into account factors like the contract length and mileage limits. It essentially serves as the projected final payment.

End of Agreement Options

Option 1: Purchase

At the end of the contract, the buyer has the option to purchase the car by paying the GFV. This final payment amount was agreed upon at the beginning of the contract and is predetermined.

Option 2: Return

The buyer can return the car to the finance company, which effectively ends their responsibility for the vehicle. The buyer should ensure the car is in good condition and hasn't exceeded the agreed-upon mileage limit to avoid additional charges for excess wear and tear.

Option 3: Part Exchange

The buyer can choose to part-exchange the car for a new one, using any potential equity (the difference between the car's market value and the GFV) as a deposit on the new vehicle.

Additional Charges

If the car has exceeded the agreed mileage limit or shows more wear and tear than allowed, the finance company may apply additional charges at the end of the contract.

Ownership

Throughout the contract, the buyer does not technically own the car, as it remains the property of the finance company. Ownership is transferred if the buyer chooses the purchase option (Option 1) and pays the GFV.

PCP can be an attractive option for individuals who like to change their cars regularly and want flexibility at the end of the agreement. It's essential to carefully review the contract terms, interest rates, and potential fees associated with PCP before entering into an agreement. As with any financial decision, understanding the terms and conditions will help buyers make an informed choice that aligns with their needs and budget.

Personal Contract Hire (PCH)

Personal Contract Hire (PCH) is a type of car leasing arrangement that allows individuals to use a vehicle for an agreed-upon period (typically 2 to 4 years) by making fixed monthly payments. Unlike other car financing options, PCH does not provide the option to own the vehicle at the end of the lease. Instead, the car is returned to the leasing company, and the individual can then lease a new vehicle if desired. Here's a detailed explanation of how Personal Contract Hire works:

Vehicle Selection

The individual selects the vehicle they want to lease. PCH is commonly used for new cars, but it can also apply to used vehicles.

Lease Agreement Terms

The individual and the leasing company agree on the contract terms, including the lease duration (e.g., 24, 36, or 48 months) and the agreed-upon mileage limit for the lease period.

Initial Payment

The lease typically requires an initial payment upfront, which is equivalent to multiple monthly lease payments. This initial payment is often referred to as the "initial rental" or "advance rental."

Monthly Payments

Throughout the lease term, the individual makes fixed monthly payments to the leasing company. These payments cover the depreciation of the vehicle's value during the lease period, plus any fees and interest.

Mileage Limit

PCH agreements have a pre-determined mileage limit for the lease term. If the individual exceeds this mileage limit, they may incur additional charges for the excess mileage when returning the car.

Maintenance and Servicing

Some PCH agreements may include maintenance and servicing as part of the package, though this is not always the case. It's essential to clarify what is covered in the lease agreement.

End of Lease Options

Option 1: Return the Vehicle

At the end of the lease term, the individual returns the vehicle to the leasing company. They may need to ensure the car is in good condition, considering normal wear and tear, to avoid any additional charges.

Option 2: Lease a New Vehicle

If the individual wishes to continue using a leased car, they can enter into a new PCH agreement for a different vehicle.

Option 3: Purchase

Some PCH agreements may offer an option to purchase the vehicle at the end of the lease term. This is known as a "lease purchase" or "lease with an option to buy." The individual can choose to buy the car by paying a pre-determined price, known as the "balloon payment" or "purchase price."

Ownership

Throughout the lease period, the individual does not own the vehicle. The leasing company retains ownership, and the individual is effectively renting the car. Ownership is not transferred at the end of the lease, except in cases where a specific lease purchase option is exercised.

Personal Contract Hire can be attractive for individuals who prefer to drive a new car every few years without the responsibilities of ownership, such as depreciation concerns. It offers the flexibility to easily switch to a different vehicle after the lease term ends. However, it's essential to carefully review the lease terms, mileage limits, potential fees, and other conditions to ensure it aligns with one's driving needs and budget.

Insurances & Protections

We offer a range of insurances and protections to customers. 

SMART Protect

SMART Protect from our insurance partner AutoProtect is designed to help you keep your car in tip-top condition.

The bodywork on your customer’s shiny new car gets chipped, dented, scratched or scuffed? Let’s face it, every-day wear and tear like this is hard to avoid, no matter how careful they are.Whenever your customer needs to, they can just contact our Customer Service team to validate their claim and arrange for one of our expert repair technicians to come to you at home or work at a time that suits.

SMART Protect from AutoProtect is designed to help your customer keep their car in tip-top condition.

Key Insurance

Tyre Insurance

Tyre insurance will refund the cost of having to repair or replace a tyre or tyres that have suffered accidental, malicious damage or a puncture during the period of insurance. Includes all five tyres and including a spare. Covers tyres for up to 36 months from policy purchase date. Can cover run flat tyres. 

Protections

Paint Protection

Complete Wheel Insurance

It combines AutoProtect Tyre Insurance with Alloy Wheel Insurance. No more inconvenient, pricey trips to the body shop. If a claim is successful, our partner Autoprotect will arrange for a specialist to come and make wheel repairs at your home or workplace at a time that suits. In the event that an alloy wheel is damaged beyond repair, they will pay towards the cost a replacement, up to the aggregate claims limit detailed in the Proposal/Policy Schedule.