A Guide to Car Finance: HP and PCP

There are numerous types of car finance to consider and with each working slightly differently, it can be complicated to understand the ins and outs of each.

This guide will cover everything you need to know about Hire Purchase (HP) and Personal Contract Purchase (PCP) car finance, so you will better understand what is involved when it comes to buying a new or used car.

Read on to get started.

Purchase Contract Purchase

What is PCP?

Personal Contract Purchase (PCP) is one of the most popular finance options that you can choose when purchasing your vehicle.

You can take a PCP agreement out on both new and used vehicles, which offers great flexibility around how your contract looks. For instance, the ‘Optional Final Payment’ fee will be arranged, also known sometimes as the Guaranteed Minimum Future Value (GMFV), along with the deposit amount and fixed monthly payments all to be determined once the mileage limit and agreement length are confirmed.

How does PCP work?

An initial deposit is paid, which can either be a cash payment, part-exchange, or a combination of both options. After this deposit is paid, the contract will begin, and your fixed monthly payments will start.

There may be a ‘zero deposit’ on some agreements, however, this will mean that your monthly payments will be higher than if you put down a deposit.

The PCP finance option is a popular choice with many drivers because it gives you three options at the end of the agreement:

1. You can simply end the agreement once all monthly payments have been made and return the car to the lender.

2. At the start of your agreement, an ‘Optional Final Payment’ fee will be arranged, also known sometimes as the Guaranteed Minimum Future Value (GMFV). This will confirm the final fee amount you will pay to buy the car at the end of the agreed finance term.

3. You can part-exchange or trade your car in for a new model and start a new agreement.

Please note: You may incur further charged if the vehicle is damaged, or if you have gone over the agreed mileage limit.

Who is PCP suitable for?

If you’re a private buyer looking to spread the cost of buying a car and wanting multiple options when it comes to the contract’s end, then a PCP agreement could be the one for you.

Benefits of PCP

You have assorted options at the end of the agreement:

1. Flexible finance terms.

2. Deposit contribution helps to lower your monthly payments.

3. You can cancel your PCP agreement early.

For more information and to find out if a PCP agreement is the right choice for you, enquire online, give us a call, or pop down to your local Vertu Motors dealership today, where one of our friendly team members will help you get started.

Hire Purchase

What is HP?

Hire Purchase (HP) is another popular finance option for many motorists, appealing to those who are more secure in their plans or expectations of wanting to own the vehicle at the end of the contract.

HP is a more straightforward process to follow than other finance options. You pay a sizeable deposit followed by monthly payments, with interest included and, at the end of the agreement, you have the option to own the car if you pay an ‘Optional Final Payment fee’.

How does HP work?

The first deposit is usually at least 10% of what the car is priced at which, if you are in the position to do this, is a fantastic way of keeping monthly payments and end of contract lump sums at a smaller amount. This deposit can either be paid in cash or as a part-exchange, or both. Once this is paid, you will begin paying the monthly payments for a fixed period and at the end of the agreement, you can pay the ‘Optional Final Payment fee,’ which will give you full ownership of the vehicle.