A Guide to HP and PCP Car Finance

There are many different types of finance on offer and with each working slightly differently it can often be tricky to understand what’s what.

In this article, we will cover everything you need to know about Hire Purchase (HP) and Personal Contract Purchase (PCP) contracts, to help you better understand each type of finance. Therefore, when you come to buy a new or used car, you’ll know exactly what finance plan is right for you.

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 as a customer can choose.

Available on new and used cars, Personal Contract Purchase is one of the most popular choices for financing a vehicle. This contact type allows you to spread monthly payments across a fixed term, while deferring some of the vehicle costs until the end of the contract length.

How does PCP work?

An initial deposit is to be paid, which can either be a cash payment or you can part-exchange your current vehicle or combine both options to pay the deposit. After the deposit is paid, the contract will be signed, and your fixed monthly payments will begin.

Some PCP agreements have a £0 deposit; however, this means that the monthly payments will be higher than those plans which do have an initial deposit.

One reason why the PCP finance option is such a popular choice, is that you have three options to choose from at the end of your 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: Charges may be incurred if the vehicle is damaged or if you have gone over the set mileage limit.

Who is PCP suitable for?

If you’re a private buyer and are looking to tailor your finance agreement with multiple options at the end of your agreement as well as spreading the cost of your payments, then a PCP agreement could be the option for you.

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 Macklin Motors dealership today.

Benefits of PCP

1. You have various options at the end of the agreement.

2. Flexible finance terms.

3. Deposit contribution helps to lower your monthly payments.

4. You can cancel your PCP agreement early.

Hire Purchase

What is HP?

Hire Purchase (HP) is another popular finance option for many motorists.

It’s simple to follow. You would pay a 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 initial deposit is usually at least 10% of what the car is priced. This 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 of time and at the end of the agreement, you can pay the ‘Option Fee’, which will give you full ownership of the vehicle.