PCP vs HP: Which Car Finance Is Right For Me?
PCP vs HP: Which Car Finance Is Right For Me?
If you are planning on financing your next car, there are a few different ways to do it. The main two types of car finance agreement are Personal Contract Purchase (PCP) and Hire Purchase (HP). Here, we will explain how these agreements work and the benefits and limitations of each to help you choose which is right for you.
What is PCP finance?
With PCP, you will not automatically become the owner of the car once your contract ends and you will essentially be borrowing it for a set period of time agreed by you and your finance provider. Your provider will estimate how much the vehicle will depreciate in value over the course of the agreement period and this will be the amount that you will need to pay in monthly instalments. At the end of the contract term, you can then decide whether to simply return the car to the lender, pay a large sum to keep it, or part exchange it and choose a new one.
Pros
You will get a long time to try out the car before deciding whether you want to keep it or return it
PCP monthly payments are lower than HP payments
Cons
If you choose to keep the car, you will have to make a large ‘balloon payment’
You will have to agree on a mileage limit with your lender and exceeding this or damage to the vehicle could result in extra fees
What is HP finance?
With HP you will become the owner of the vehicle at the end of the agreement and your monthly payments will go toward the full vehicle cost. At the end of the agreement, vehicle ownership will officially be transferred from the finance provider to you and the car will be yours to keep or sell as you choose.
Pros
You will become the owner of the vehicle at the end of the agreement
There is no need to worry about additional costs for mileage or wear and tear as you won’t be returning the car
Cons
HP payments are higher
It is not as flexible as PCP as you won’t have multiple options once the contract ends
Which to choose?
As we have shown, both HP or PCP finance have their benefits and it really comes down to whether you are confident that you will want to keep the car or whether you would rather keep your options open and have the ease of returning the vehicle and choosing a new car in a few years.
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Learn More | A Beginners Guide To Car Finance