However, it is far from being the only type of car loan. The good old rental agreement, or HP, is still alive and still has an appeal for some car buyers. Understanding the main differences between PCP and HP Finance HP Finance – or hire-purchase – is a form of car financing that allows drivers to buy new or used cars. You usually pay a down payment and repay the full value of the car plus interest in monthly payments. The loan is secured against the car, so you don`t own it until you`ve completed the repayment plan and paid the “call option” at the end of the contract. So, while traditional hire purchase divides the total amount into equal monthly payments, usually over three or four years, buying a personal contract involves a number of smaller monthly payments, with a larger payment at the end of the deal. This final payment is sometimes referred to as a lump sum payment or guaranteed future minimum value (MGFV). Keep in mind that HP and PCP aren`t your only options for getting a car. You may want to buy a car directly with money, take out a personal loan, or even rent a vehicle. Whatever you decide, be sure to research and weigh all your options and compare products from different suppliers to help you find the best deal for you. PQ monthly repayments are usually lower than HP`s because the amount repaid monthly does not match the initial cost of the car when the borrower comes to the end of the contract.
Instead, the lender estimates the value of the car at the end of the contract – known as the Guaranteed Minimum Future Value (GMFV) – and the payments cover the difference between that and the initial value of the car. One of the main differences between HP and PCP is the amount that borrowers repay each month. Of course, the details depend on the model of the car and the amount borrowed. This means you`d own the car at the end of an HP contract, but once a PCP contract expired, you still wouldn`t really own the car. If you want to buy it directly, you will have to make the additional “optional final payment” – this is closely related to the residual value of the car. On the other hand, with HP, once the monthly payments are complete, there is nothing left to pay because the car automatically belongs to you. If you find that you`re taking a lot more miles than expected, don`t wait until you`re overwhelmed by a big bill at the end of the deal. Instead, talk to the lender about your change in circumstances so that the terms of the agreement can be revised.
“Call the financial company,” advises Dally. “They will help find the best solution. As with all good contracts, a financial transaction recognizes that circumstances can change. “A 0% financing rate is rarely offered at the same time as a deposit contribution, but can have a similar effect on your monthly payment. The actual cost to the manufacturer is often similar — any subsidy is essentially money taken out of its coffers — but many prefer to absorb the cost in advance as an additional incentive to purchase, rather than forgo interest for the duration of the financing system. Instead, it has become much more popular to buy a car through financing, and it basically boils down to two main options: personal contract purchase (PCP) and hire purchase (HP). PCP gives you the advantage of lower monthly payments and greater flexibility – you can choose to return the car or make the optional final payment to buy it at the end of the contract – while with hire purchase you pay less interest if you want to own the car. At the beginning of your PCP contract, a guaranteed future value (GFV) of the vehicle is defined. This is the expected value of the car at the end of your contract.
Whether HP or PCP is best for you depends on your individual situation and personal preferences. With both types of auto finance, you pay a down payment and make monthly payments, but the way the deals are structured and what happens at the end of the term is different. Personal Contract Hire (PCH) is a type of long-term rental that is right for you if you don`t want to buy the car at the end of your contract and don`t need to change cars before the contract ends. You rent the car for an agreed period of time by making fixed monthly payments. When the contract expires, you just have to return your car. At the end of the HP program, you have paid the full price of the vehicle, all interest due plus the agreed additional purchase fees. The car is now yours. Check out our rental buying guide for a complete example. The main difference between PCP and HP comes at the end of your agreement. At the end of an HP transaction, you are the rightful owner of the car because you have paid the full value. At the end of the agreement, you will have the option to purchase the car or enter into a new PCP transaction, there is no fixed rule as to when the purchase subsidies are offered.
However, such offers seem to be less common in recently launched models and are often very attractive if a model needs to be replaced soon. If you`re trying to choose between the two, you`ve come to the right place. Below is a chart that highlights the pros and cons of both types of financing so you can make an informed decision about which one is best for you. However, unlike HP, at the end of the PCP, you have not paid the full cost of the car. The GMFV will still be pending. If you want to own the car directly, you will need to make an optional final payment, as it is usually called. Check out our personal contract plan guide for a complete example. The most important question is whether you want to own the car you buy directly at the end of the financing contract. While an HP program covers the entire purchase price of the vehicle, PCP does not do so unless you make the optional “balance payment” that covers the residual value of the vehicle after your payment period expires. Flexibility is another important advantage of PCPs, both over HP and in rental forms, such as . B the hiring of personal contracts.
“A PCP allows consumers to open up. When people buy the car, they don`t necessarily know if they`re going to make the lump sum payment to own the car directly, exchange the car for a new one, or just return the keys with nothing else, but they know they`re going to have these three options,” Dally concludes. Another way to finance your car purchase is a personal loan. The amount can be used for the total acquisition cost of the vehicle you want to buy, or it can be used to make up for a shortfall if you plan to pay in cash. Read on to learn more about leasing and buying personal contracts so you can decide if HP or PCP is right for you. Deciding how to finance your car is an important decision that many of us are increasingly making. According to the Finance & Leasing Association, 91.7% of cars were purchased on financing in the 12 months ending December 2019. You may have heard of HP and PCP, but how do they work and what are the main differences between them? PCP financing – or the purchase of a personal contract – is a popular way to buy a car. HP repayments are the value of the vehicle at the time of purchase plus interest, spread over the term of the contract, which typically lasts 12 to 60 months.
At the end of the term, the borrower will be the owner of the vehicle. Three letters have dominated the car financing market in recent years: PCP. It means buying a personal contract and is by far the most popular way to finance a new car. According to the Finance and Leasing Association (FLA), about 76% of all new car financing contracts in the year ending March 2016 were PCPs. The balloon payment is based on what traders call the “guaranteed future minimum value” (GMFV). This is determined before you sign the contract and represents the amount that the dealer expects the vehicle to be worth at the end of your contract. With HP, the financial company doesn`t give two shouts about the distance you`re driving. This is because there is no need to charge MGFV, so the speed at which the car loses value makes no difference to the terms of the loan.
You finance the cost of the car, minus the deposit you deposited. .