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PCP or HP Finance: A Guide

When looking to get a car loan, pcp or hp are your most popular options. They are the most popular car finance agreement types you can choose in the UK. If you’re thinking about financing a new car, it’s important to understand which type is right for you. In this guide, we’ll explain what each type of finance is and how they work. We’ll then compare these two options so that you can make the best decision for your situation.

PCP: What is it?

Personal Contract Purchase (PCP) is a form of car finance. It allows you to buy your new car and make monthly payments, with the option to own it at the end of the contract. Or you can choose to return the vehicle or trade it in at the end of your agreement

PCP is popular among buyers who want to pay less for their vehicles, but also want to keep them for a long time. You can also use PCP if you’re on a tight budget and need help getting a vehicle. 

The main advantage of PCP is that it allows you to choose what you do with the vehicle at the end of the agreement. You have multiple options to choose from and it’s great for those who aren’t sure if they want to keep the car at the end of the agreement. 

PCP: How does it work?

PCP is a type of finance where you pay a deposit and then make monthly payments over the length of your contract. The amount you pay each month will be based on the car’s projected value at the end of your agreement. 

At the end of your agreement, you have three options: 

  1. Return it (and get nothing back).
  2. Trade it in for another vehicle.
  3. Pay the ‘balloon payment’ and keep the vehicle.

Please note that if you don’t choose to own the car at the end of the agreement, you will have to pay some additional fees. These are typically repair costs if your vehicle has some wear and tear when you return it. 

Also, with PCP contracts, you agree to mileage limits. This is because mileage contributes to the depreciation of your car. The finance company you agree to this contract with will need to put these limits in place. This is so they can accurately calculate your monthly payments. 

HP: What is it?

Hire Purchase (HP) is a form of car finance where you buy the car outright at the end of your agreement. It’s a way of buying a car, but it’s also a type of car finance itself.

If you’ve ever owned or leased a vehicle before, then you’ll probably already be familiar with HP. However, not all HP contracts are the same. And, that’s usually down to the difference in the car contract length and the car you choose. 

Luckily, HP finance doesn’t have any mileage limits. That’s because, at the end of your contract, you typically keep the car. 

HP: How does it work?

HP Finance is a hire purchase agreement, which means you pay a deposit and then monthly instalments until the car is paid off. You can repay your loan early if you want to, or at the end of your contract. If you want, you can buy it outright at any point by paying off all remaining instalments in one go – just make sure you keep up with your payments!

You can also sell the vehicle after paying for it. Or, if you really want to, you can give the car back if you have made less than half of the repayments.

PCP or HP finance: The benefits of each type of car finance

  • PCP is a good option if you want to change your car at the end of the finance agreement.
  • HP is a good option if you want to own your car at the end of the finance agreement. 
  • PCP is a good option if you want to reduce the monthly cost of your car.

PCP or HP finance: Which is best for you?

So you’re looking to buy a new car, and you want the best deal. But which finance option is right for you? This guide will help you decide which one is best for your situation.

When choosing which car finance agreement is best for you, you should ask yourself these questions:

  • Do I want to keep the car?
  • What do I need or want from a new car?
  • How far do I need to drive my car each month?
  • What is my budget?
  • What is my credit score? What are my finances looking like?

PCP or HP finance: Can I Change My Mind?

You can change your mind at any time. Make sure you are in contact with your finance provider to see what your options are. You may still have to make payments should you wish to cancel your agreement. 

You can also change your car, monthly payment, or mileage allowance. if it’s worth more or less than the amount of money that’s agreed upon when signing up for PCP and HP finance deals respectively. 

For those who prefer having more control over their finances when buying cars with PCP deals, there are other options available such as personal loans where there won’t be any penalties associated with changing interest rates during repayment periods.

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

When it comes to deciding between PCP and HP finance, there are many factors to consider. The key is to think about what type of car finance suits you best – and where your priorities lie. For example, if you want to get a new vehicle but can’t afford the monthly payments, then a PCP deal could be the right choice for you. On the other hand, if buying a new car is important but so is saving money on fuel costs now and in the future (i.e., when interest rates rise), then an HP deal might be more suitable.

When deciding whether PCP or HP finance is right for your needs, try asking yourself these questions:

  • What’s my current financial situation like? Do I have any debts that need to be paid off? Am I able to make larger payments while still being able to cover my daily expenses? Knowing this will help determine which type of deal would be better suited for you. 

It’s always best to do your research before considering your finance options. That’s why it’s best to approach a car finance brokerage service. We and our partners have the industry knowledge to help you make the right decision. Plus we can pair you with the best lenders thanks to our panel to choose from. 

It depends on your situation, but you may want to consider both because they have different benefits.

Whether you’re choosing between HP and PCP, it’s important to remember that each option has its own benefits. You should consider them both before making your decision.

If you’re planning on keeping your car for a while, then HP may be the best option. This is because there’s no need to worry about making other payments if you don’t plan on keeping your vehicle for long.  On the other hand, PCP is great if you don’t want to agree to any long-term commitments. 

Finally, keep in mind that these are just guidelines – there’s no right answer when choosing between these two financing options! As with any financial decision, only you can truly decide which option is right for you.  Your personal preferences and financial circumstances will also drive you to decide which option is right. Our brokers will help to give you the knowledge to help you make the right choice. 

To finish

Both PCP and HP finance have their strengths and weaknesses. However, if you are considering purchasing a car, it’s always best to give yourself options. If you want to be flexible, PCP could be an excellent option. However, if you want to buy your car at the conclusion of the term and don’t mind paying more each month, an HP contract may be a better fit. Put your information into our contact form today to see what we could offer you.

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