In this article the differences between the PCP & HP shall be explained whilst also looking into the pros and cons of both options.
Introduction:
A question I’ve heard so many times! What is the difference between Personal Contract Purchase (PCP) and Hire Purchase (HP)?
In fact there are a number of differences between the two and many plusses and negatives to each.
So to start...
What is PCP?
Personal Contract purchase (also known as PCP) was developed as a contract for private individuals. It’s an option that allows you to purchase a new car that you couldn’t afford to buy in a lump sum.
PCP is a good way of avoiding the depreciation (read more about depreciation below); you pay a pre agreed monthly fee for the vehicle with the option of purchasing it for a final sum at the end of contract or simply giving it back.
How much you pay each month will vary on many different factors such as how long the length of the contract may be, the annual mileage you expect to cover and the deposit you put down.
Benefits of PCP are
• You know exactly what you’re paying with a fixed monthly price.
• You don’t have to dig into your savings to purchase an affordable older car.
• There is always the option of maintenance within the contract which means you don’t have to worry about faults or repairs for the length of the contract and road tax is usually included for the first year.
• Affordable monthly payments which are cheaper than most other forms of finance.
• You can arrange PCP on used cars too. Franchised dealers will often offer PCP on vehicles up to 3 years old.
Disadvantages of PCP
There are very few disadvantages to this type of contract except you may find that it’s a little more expensive than hire purchase contracts. i.e. even though the monthly payments are lower, you may end up paying more if you decide to make the balloon payment at the end and buy the car.
What is Hire Purchase?
Hire purchase is a common way of paying for items that you can’t afford to buy purchase outright.
A simple calculation is performed based upon the term over which you wish to purchase the vehicle and the interest rate being offered by the finance company. You pay a monthly price for the item for a fixed term. With HP you will not own the vehicle until the final payment has been made and so cannot make any modifications etc.
Benefits of HP are
• You can benefit from items you wouldn’t normally be able to afford
• You don’t have to pay a lump sum, the entire cost of the vehicle is spread out over the monthly payments.
Disadvantages of PCP
• You will not own the car until the last payment has been made.
• The finance company can take the car back at any time should you not keep up with your repayments.
• You will be liable for any damages that occur during the term of the contract. So, if the car is written off, you will still be paying for it until the end of the contract -although there are various insurance policies that can cover this.
Which is best then?
Well, it depends upon the car you are buying, your personal circumstances and preferences. It is worthwhile getting both HP and PCP quotes (in addition to looking at other finance types and loans) before making your final decision. You should always look at the total amount payable over the term of the contract in addition to the monthly payments.
Why it is important to choose the right car:
Due to a number of circumstances such as the recession and the rising price of fuel, it’s becoming increasingly important to think carefully when purchasing a car! In this article we will look at why this is a matter of importance and provide some advice on how to make the right choice when buying a new car!
New Vauxhall pop art competition!
Vauxhall have launched a competition which gives contestants the chance to appear in the next TV ad for the Vauxhall Corsa. The competition “Pop Art Idol” has had massive interest!
