PCP VS HP
Personal contract purchase (PCP) and hire purchase (HP) are the two most common and popular car finance options out there. Knowing the difference between the two can help you make a more informed decision about which option is best for you.
How does hire purchase car finance work?
You’ll put down an initial deposit for the car you’re interested in, although some dealerships such as us at Motor City Plymouth offer no deposit finance options. When signing up you’ll agree with the lender on your contract length which can range between 12 and 48 months. You’ll make monthly repayments towards your agreement during this term, until the end when you make the final payment, and the car is then yours.
Remember, your repayments include interest, so make sure to look at the APR rate as this varies between lenders.
How does personal contract purchase car finance work?
Just like with a hire purchase car finance agreement, you’ll need to place down an initial deposit on the vehicle you’re interested in. The remaining amount owed on the car is then spread out into monthly repayments over an agreed contract term. However, you’ll find monthly PCP repayments are lower in comparison to hire purchase as a large chunk of the cost of the car is deferred to the end of the agreement, this is known as the guaranteed minimum future value.
Essentially, guaranteed minimum future value is the estimated price of what the car will be worth at the end of your agreement, which is worked out before you sign your contract. Your monthly payments are then based on the difference between the price of the car and its guaranteed future value.
In comparison to hire purchase though, you have three options to choose from when it comes to the end of the agreement. You can either pay the final lump sum (also referred to as a balloon payment), to own the car, exchange it and upgrade to another car or return it.
How do I know which option is best for me?
Choose HP if:
You want to own your car and you’re going to be keeping it for a number of years
You’re interested in buying a used car
You want fixed interest rates so you know where you stand with your money each month
You don’t want a final lump sum payment to worry about paying at the end
Choose PCP if:
You want lower monthly repayments
You like to regularly upgrade your car every few years
You’re after a newer spec model of car
You’re interested in either a new or a used car
Get your ideal finance agreement at Motor City Plymouth
At Motor City Plymouth we offer two main car finance products; PCP and HP. Don’t worry if you have poor credit history either, as we work with specialist lenders who are experts in helping people in these circumstances. We also offer no deposit agreements, to help you get behind the wheel of your dream car quickly and easily.
If you’re interested in financing your next car on hire purchase or personal contract purchase, you can find out more by contacting us or coming down to our dealership in Plymouth to discuss your options in person.
Alternatively, you can always get a free finance eligibility check online before applying to see which option would be best based on your credit score, and monthly repayment term.