What Is The Difference Between PCP and HP?
Posted: 24th March 2017
Two of the most popular options for getting a car is Personal Contract Purchase (PCP) and Hire Purchase (HP). But which one should you get and what exactly is the difference between them? There are similarities between the two policies and it entirely depends on what you are looking for before deciding which one is the best suited for you.
A PCP deal allows you to lease a car for an agreed period of time, usually 48 months. At the end, you can choose to return the car, upgrade to another car or pay the remaining value on the car and own it. An HP deal is when you pay monthly for an agreed period, between 24-60 months, and at the end, you own the car.
What is PCP?
Personal Contract Purchase (PCP) is the most common agreement taken out when it comes to what people class as leasing a car. This is down to its flexibility and ease in which you can budget for it, including whether you wish to pay a deposit or not. With PCP, the monthly payments required will usually be lower than standard car finance, which is the main reason for it being the most popular choice. The payments are fixed, so you will have no unwanted price rises sprung upon you with a PCP deal.
As previously mentioned, at the end of a PCP agreement, you have three options of what to do with your car. The first is that you can pay off the balloon payment and become the legal owner of the car. Whilst on a PCP deal you are not the legal owner, but a registered keeper as you are, in essence, renting it from the dealership for the length of your agreement. The balloon payment is a final value figure for what your car should be worth at the end and is calculated at the start of the agreement. For you to own the car, you must pay off that balloon amount.
With a PCP deal, you can simply hand the car back instead of paying the balloon payment. You then have the freedom to start a fresh leasing agreement if you so wish. There is no additional charge for you to pay unless you go over your agreed mileage or outside the wear and tear standards. This option removes any worry you may have about depreciation.
The third option is to part exchange it for another car. This is an option to consider because your car may not have depreciated as much as expected and might be worth more than the originally agreed balloon figure. This option allows you to add value onto your new deal, therefore saving you money in the long term or reduce the value of your next car by using your old car’s additional value as a deposit.
What is Hire Purchase?
Hire Purchase (HP) is an agreement whereby you spread the total value of the car over an agreed amount of time. You are paying to have complete ownership of the car. Throughout the agreement, the legal owner of the car is the finance provider in a similar way to a PCP agreements, however, you only have two choices at the end of the agreement.
With a HP deal, you own the car at the end without the need of a balloon payment because you will have paid off the worth of the car through monthly payments. The only payment made at the end of the agreement is a final payment figure that transfers ownership from the provider to you. With this agreement, you can opt for an early settlement, which allows you to pay off the car early and take ownership before the agreement officially ends.
The second option is that you can upgrade instead of taking ownership of the car. This allows you to choose a new car by part exchanging the one you have been driving. This again should go towards saving you money in the long run.
In a similar way to PCP agreements, the monthly payments are fixed to ensure you can effectively plan your budget without a sudden increase in the amount you pay per month. There are also no additional charges for mileage or damage because you will be owning the car rather than returning it. This will obviously affect the value of the car however if you choose to part exchange or sell it.
One of the best things about hire purchase agreements is that they can be offered to those on whatever level of credit, whether that be excellent, good or poor. Everyone has the option of being considered a distinct possibility that you could be offered a deal suitable for you.
Which to choose?
Personal Contract Purchase
Fixed lower monthly payments
Fixed monthly payments
Pay off Balloon payment and own the car
Pay final payment figure and own the car
Can return the car
Paying to own the car at the end
Part exchange and upgrade to another car
Part exchange and upgrade to another car
No depreciation concerns
No additional charges for mileage or damage
Flexible deposits/no deposits
Available for poor credit customers
Best option if you want flexibility at the end
Best option if you wish to own the car
If you decided which finance agreement is right for you, we have a wide range of cars available as a PCP agreement and HP agreements.
If you don’t have the funds for a deposit, PCP no deposit deals are available as well as hire purchases deals for those with poor or bad credit. All you have to do is find the right car and get the right deal to suit what you are looking for.