PCP vs HP Finance: A Guide

When looking for a car loan, people are often stuck asking themselves ‘PCP vs HP finance?’. They are the most common types of vehicle finance agreements available in the UK. If you’re considering leasing a new car, you should know which type is best for you. We’ll explain what each form of financing product is and how it works in this guide. We’ll then compare these two possibilities so you may make the best decision possible for your circumstances.

What is PCP?

Personal Contract Purchase (PCP) is a type of car financing. It enables you to purchase a new car and make monthly payments, with the potential of owning it at the conclusion of the contract. You can also choose to return or trade in the vehicle at the end of your agreement. 

PCP is popular among purchasers who wish to pay less for their vehicles while also keeping them for an extended period of time. You can also use PCP if you have a limited budget and need assistance purchasing a vehicle.

The biggest benefit of PCP is that you can pick what you want to do with the vehicle at the Fend of the agreement. You have several options to pick from, which is ideal for individuals who are unsure if they want to keep the car at the end of the agreement.

How Does PCP Work?

PCP is a sort of finance in which you pay a down payment and then make monthly payments for the duration of your contract. The monthly payment will be determined by the car’s predicted worth at the end of your agreement.

You have three alternatives at the end of your agreement:

  • Please return it (and get nothing back).
  • Trade it in for a different vehicle.
  • Pay the ‘balloon payment‘ and you get to retain the automobile.

Please keep in mind that if you do not opt to acquire the vehicle at the end of the agreement, you will be required to pay some additional expenses. If your car has any wear and tear when you return it, you will normally pay repair fees.

You also agree to mileage limits with PCP contracts. This is due to the fact that mileage contributes to the depreciation of your vehicle. These restrictions must be imposed by the loan firm with whom you have agreed to this arrangement. This is done so that they can compute your monthly payments correctly.

What is HP?

Hire Purchase (HP) is a type of vehicle financing in which you acquire the car outright at the end of your contract. It’s a method of purchasing an automobile, but it’s also a sort of car financing.

If you’ve ever bought or leased a car, you’re definitely already familiar with HP. However, not all HP contracts are similar And this is usually due to the difference in the term of the car finance contract and the vehicle you select. 

Fortunately, there are no mileage restrictions with HP finance. Because you normally keep the car at the end of your term.

How does HP work?

HP Finance is a hire purchase deal, which means you pay a deposit and then monthly instalments until you have paid off the car. If you choose, you can repay your loan early or at the end of your term. You can buy it outright at any time by paying off all remaining instalments in one lump sum – just make sure you stay on top of your payments!

You can even sell the automobile once you have paid for it. If you truly want to, you can return the car if you have only made half of the instalments.

The Benefits of PCP and HP Finance Options

  • If you wish to swap cars at the completion of the credit agreement, PCP is an excellent option.
  • If you wish to own your vehicle at the end of the financial agreement, HP is a good alternative.
  • If you want to decrease the monthly cost of your car, PCP is a good alternative.

PCP vs HP finance: Which is the best option for you?

So you’re looking to buy a new motor and want to get the best bargain possible. But which of these financing options is best for you? This information will assist you in determining which is ideal for your specific situation.

When deciding which auto financing option is best for you, consider the following:

  • Should I keep the car?
  • What do I require or prefer in a new car?
  • How far should I drive my car each month?
  • What is my financial situation?
  • What is my credit rating? How are my funds looking?

PCP vs HP finance: Is it possible for me to change my mind?

You have the right to change your mind at any time. Make contact with your finance provider to find out what your possibilities are. If you want to cancel your arrangement, you may still have to make payments.

You can also change your vehicle, monthly payment, and mileage allowance. Whether it is worth more or less than the sum agreed upon when signing up for PCP and HP finance.

There are other options available for those who prefer to have more control over their finances when purchasing cars with PCP deals. For example, personal loans, where there will be no penalties associated with changing interest rates during repayment periods.  

PCP vs HP finance: How to choose the best option for you

There are numerous aspects to consider while picking between PCP and HP finance. The trick is to consider what form of car financing is best for you – and where your interests lie. For example, if you want to buy a new car but cannot afford the monthly payments, a PCP contract may be the best option for you. On the other hand, if purchasing a new car is vital, but so is saving money on fuel costs now and in the future (for example, when interest rates rise), then a HP arrangement may be more appropriate.

When considering whether PCP or HP finance is best for you, consider the following questions:

  • What is my present financial situation? Is there anything I owe that I need to pay off? Is it possible for me to make greater payments while still covering my daily expenses? Knowing this will help you evaluate which form of contract is best for you.

It’s usually a good idea to conduct your homework before contemplating your financial options. That is why it is best to seek the assistance of an auto finance brokerage business. We and our partners have the industry expertise to assist you in making the best selection. In addition, we can match you with the best lenders from our panel.

It depends on your circumstances, however, you might want to think about both because they have various advantages.

When deciding between HP and PCP, keep in mind that each has advantages and disadvantages. You should think about both of them before making a decision.

If you intend to keep your motor for an extended period of time, HP may be the best option. This is because there is no need to worry about making additional payments if you do not intend to keep your vehicle for an extended period of time. PCP, on the other hand, is ideal if you don’t want to make any long-term commitments.

Finally, remember that these are only suggestions; there is no correct answer when deciding between these two funding choices! Only you can genuinely decide which option is best for you, as with any financial decision. Your own preferences and financial conditions will also influence your decision. Our brokers will provide you with the information you need to make the best decision.

To Conclude

Both PCP and HP finance have advantages and disadvantages. However, if you’re thinking about buying a car, it’s usually a good idea to give yourself some options. PCP may be a fantastic option if you wish to be flexible. A HP contract, on the other hand, maybe a better option if you want to buy your car at the end of the term and don’t mind paying more each month. Have you been asking yourself ‘PCP vs HP finance?’, get a quote today to find out what we could do for you. This will help inform your decision before you get in contact with us!