What is Better - PCP or HP Car Finance?
07 Sep 2021
What is Better - PCP or HP Car Finance?
07 Sep 2021
What is Better - PCP or HP Car Finance?
You’ve found your dream car, or you’re at least wanting to start looking. But if you don’t have savings or a generous friend to buy it for you, you might wonder how to pay for your car.
If you’ve already done a brief search for car financing options, you’ll no doubt have come across some technical-looking terms. So, if you’ve been left wondering what HP and PCP are in car finance terms, we’re here to help.
How do different types of car finance work?
There are so many options available to choose from, and it can be difficult to decide what’s right for you. So, let’s get into it and see what car finance is better: HP, PCP, or a personal loan.
What is HP Car Finance?
With a Hire purchase deal, you’ll pay an upfront deposit and then continue to pay off the rest of the car in fixed monthly instalments, including interest.
This type of loan is secured against your car, so you don’t actually own the car until it is paid off in full. The dealership that you have an agreement with owns your car until you have fully paid it off.
| Pros of Hire Purchase |
Cons of Hire Purchase
|
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No Mileage restrictions
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You can be repossessed If you fail to make payment |
| No Balloon payment at end of agreement | Missed payments can negatively affect your credit score |
| You own the car fully after you’ve completed all your monthly payments | You do not legally own your car until after your final payment |
| Your payments are fixed and so they remain the same throughout your agreement | |
| Can be expensive if you’re only looking for a short-term agreement | |
| Monthly payments tend to be smaller |
What is PCP Car Finance?
If you opt for a Personal Contract Purchase (PCP), you will pay fixed monthly payments over a set period of time. You may have the option to pay an initial deposit at the start, making your monthly repayments smaller.
At the end of your agreement, you can give the car back to the dealership. If there is any equity, use that for a deposit towards a new car, pay what is called the “balloon payment” (however much is left on the car). Or, you can take out a new PCP deal.
| Pros of a PCP | Cons of a PCP |
| Low Interest | You have to pay a large final payment at the end of your agreement if you want to keep the car |
| You can get cars that you otherwise might not be able to afford | You have to stick to mileage restrictions, or you will face charges |
| You don’t have to consider the car depreciating by the end of your agreement | You have to stick to wear and tear restrictions or you will be charged |
| Smaller monthly payments |
What is a Personal Loan in Car Finance?
| Pros of a personal loan | Cons of a personal loan |
| The dealership cannot repossess your car if you fail to make your payments, as you own the car | It’s harder to get accepted if you have a bad credit history |
| You can choose to buy a car from a dealership or a private seller | The best interest rates are reserved for people with good credit |
| You can use a portion of the loan to pay for all or some of the car and use the rest for something else, e.g. insurance | You can’t usually get a personal loan for more than £25,000 |
| You can negotiate the price of the car | |
| You can sell your car before the end of your loan agreement as long as you continue your payments |