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PCP, PCH or HP? Car Finance Explained

22 July 2023

When it comes to purchasing a new car, there are various finance options available in the UK, making it easier for you to afford your dream vehicles without straining your budgets.

Three popular car finance options are PCP (Personal Contract Purchase), PCH (Personal Contract Hire), and HP (Hire Purchase). In this blog post, we'll delve into the details of each option, explaining their features, benefits, and considerations, to help you make an informed decision when choosing the best car finance option for your needs.

Personal Contract Purchase (PCP):

PCP is a popular car finance option that offers flexibility and lower monthly payments compared to traditional Hire Purchase agreements. With PCP, you agree to make fixed monthly payments over a predetermined period, typically two to four years. These payments cover the car's depreciation and interest, making them more affordable.

At the end of the PCP term, you have three options:

a) Purchase the car: You can pay a pre-agreed "balloon" payment (the Guaranteed Minimum Future Value - GMFV) to own the car outright.

b) Return the car: If you decide not to keep the car, you can return it to the dealer, and you won't have to worry about the car's future value.

c) Part-exchange for a new car: You can use any equity left in the car after settling the GMFV as a deposit for your next car.

Advantages of PCP:

  • Lower monthly payments compared to HP or outright purchase.
  • Flexibility at the end of the agreement to choose between ownership and returning the vehicle.
  • Opportunity to drive a new car more frequently, as you can upgrade every few years.
  • There might be mileage limits, and exceeding them could lead to additional charges.
  • You must take good care of the car to avoid penalties for excessive wear and tear.

Personal Contract Hire (PCH):

PCH, also known as car leasing, is another popular option for those who prefer not to own the vehicle. With PCH, you essentially rent the car for a fixed term, typically two to four years. The monthly payments are based on the car's depreciation during the lease period and not its full value.

At the end of the PCH term:

a) You return the car to the dealer with no further obligations, provided it meets the agreed-upon condition.

Advantages of PCH:

  • Lower monthly payments compared to PCP or HP since you're not paying for the car's full value.
  • No worries about the car's future value, as you don't own it.
  • You will not have equity in the car since you do not own it at any point during the agreement.
  • You must adhere to the mileage and condition requirements to avoid additional charges.

Hire Purchase (HP):

HP is a straightforward and traditional car finance option. With HP, you pay fixed monthly instalments over a set period (usually one to five years) until you've paid off the entire car's value, including any interest.

At the end of the HP term:

a) You become the car's legal owner once the final payment, including the option to purchase fee, is made.

Advantages of HP:

  • Ownership of the car at the end of the agreement.
  • No mileage restrictions, as you will own the car outright.
  • Monthly payments may be higher compared to PCP or PCH.
  • The car's future value won't be guaranteed, leaving you responsible for any potential depreciation.

When considering car finance options, it's crucial to understand the differences between PCP, PCH, and HP. Each option has its benefits and considerations, catering to different preferences and financial situations. PCP and PCH offer more flexibility and lower monthly payments, making them suitable for those who enjoy driving new cars regularly without worrying about ownership. On the other hand, HP provides the satisfaction of owning the vehicle outright and offers freedom from mileage restrictions.

Always evaluate your needs, budget, and future plans before making a decision, and don't hesitate to consult with a professional car finance advisor to ensure you choose the option that aligns best with your circumstances.

Should you need any further advise please do get in touch with any of our Startin Dealerships, the team will always be happy to assist in any question of query you may have! 


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