Personal Contract Purchase (PCP) and Hire Purchase (HP) – Which One should You Choose?

Personal Contract Purchase (PCP) and Hire Purchase (HP) are two types of finances you are most likely to come across while purchasing a new car. Both of them are quite similar, but have some basic differences too. For choosing one of them, you should understand what they are and what the similarities and differences are.

Two Types of Car Finance – Personal Contract Purchase (PCP) and Hire Purchase (HP)

HP is a simplest and the most renowned type of car finance, so, most comfortable too. The cost of the car you want to buy is spread over a stipulated period (often up to five years) and interest is normally added at a rate agreed.

PCP is basically a hire purchase; however, you defer an amount (named a balloon, residual or guaranteed future value) till the end of the term (often a maximum of three years). Nothing of this guaranteed future value is paid with your per month payments, though you pay interest on it all through the term.

Which One is Best?

It depends on your personal requirements and the vehicle you are planning to purchase. A PCP will offer you reduced payments over the same term as that by HP because a major proportion is deferred till the term ends. So, PCP is a better option for you if you don’t have a big deposit, or want a shorter term or low monthly payments. And HP is a better option, if you are not very fond of the idea of a guaranteed future value looming at the agreement’s end.

Benefits of Both

A HP agreement is easy to understand and you have the knowledge that you will have to pay the same amount per month all through the term till you have the ownership of the car, whereas a PCP offers you lower per month payment and offers you a chance to change the car more often thereby saving your money on an aging car’s maintenance. Also you don’t have to worry about MOT tests.

Another main benefit of a PCP is that if you don’t exceed the agreed mileage limit during the term, you are free to return the car back to the finance company, if you find that it’s not worth the amount you need to pay to take its ownership.

Empire Leasing specialise in all type of car finance like HP, PCP, outright purchase and finance leasing, including car leasing, vehicle leasing, van leasing and contract hire in the UK. Visit their site to know about their wide array of services.

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