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PCP vs HP : What’s the difference? 

PCP vs HP : What’s the difference? 

We explain the difference between a Personal Contract Plan and Hire Purchase Agreement 

Car finance is becoming more appealing to consumers who are buying a car as it’s more affordable to spread the cost over a long term finance agreement. However Financing a car can be a tricky process especially if you do not know the basic key terms Car Dealers and Finance companies use. We’re here to explain car finance in the simplest terms and which one you should choose. 

Financing Vehicles has become the newest trend in which allows consumers to afford the cars they have always dreamed of driving. The 2 most common types of finance agreements are Personal Contract Plans (PCP) and Hire Purchase Agreements (HP). So which one do you choose? 

What is PCP?

A Personal Contract Plan is a form of a hire purchase however a large portion of the Loan is left as a final payment at the end of the agreement. 

This means that with a PCP agreement the monthly figures can be substantially lower than that of a Hire Purchase making it more appealing to the average consumer to snap up. However when seeing these figures you must check what is known as the “Balloon Payment” which is the amount left to pay after the Contact has ended. This can be a frightful figure and can scare a lot of consumers away from choosing a PCP. 

However you do not have to pay this amount if you choose, just return the vehicle and be on your way. If the Value of the car succeeds the amount left you have to pay then you can use the difference on a deposit on a new car which makes it all the more attractive to choose. There are 3 options at the end of the agreement: Pay the balloon payment and keep the car, part exchange the car at your local dealer or hand the car back. 

What is HP? 

On the other hand, you can choose a Hire Purchase agreement which essentially spreads the cost of the vehicle over the amount of months chosen. In comparison to a PCP agreement you don’t have the large payment at the end of the agreement which means the car is yours to do whatever you wish with it. However this can mean the monthly payments can be slightly higher than the ones on a PCP. 

A huge positive of HP is that the agreement is not packaged with additional terms such as Yearly Mileage Restrictions as you get with a PCP. As PCP is in terms a form of leasing companies tend to put on mileage limits so that when you hand the car back it’s not stacked with a ton of miles on the clock. This is just an important factor to consider when choosing your finance plan. 

So which one do i choose? 

When choosing between agreements just be sure to check through all terms and conditions and not just the monthly figures as the PCP figures will look more appetising than HP figures. If you’re someone who drives a lot of miles each year we recommend steering towards HP. Whereas if you’re looking at changing cars every 4 years or so we recommend choosing PCP just make sure you check the Mileage restrictions before signing into any contract. 


Need more help or have any Questions? 

If you have anymore questions on any finance related topics our finance team are always on hand to help just call: 0121 526 2348 (Option 3)

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