Personal Contract Purchase (PCP)

Personal Contract Purchase (PCP) is a car finance in which you can hire a car from the lender or the dealer. For that, you have to make an initial deposit of 10% of the car’s value, only after making the deposit you can get the car from the dealer or lender. The rest of the car’s value you can pay by selecting a time period of 2 to 5 years. Make sure you choose a term which suits you and whose repayments you can afford. In PCP you won’t be the rightful owner of the car during your repayment period

The amount that you will have to pay monthly will be agreed upfront with the lender or the car dealer. Remember that you won’t be paying the full cost of the car like you do in hire purchase car finance. You will be paying lower payments than hire purchase if you want to hire the car and not purchase it.

Options At the End of the Contract

At the end of the personal contract purchase (PCP) agreement, you are left with 3 options from which you can select any one.

Exchange the car for a brand new model

Most people go for PCP because of this option. If you choose to exchange at the end of your contract be sure that your car is in good condition. If the condition of your car is good, the dealer will accept that instead of a deposit amount for your new car.

Return the car back

At the end of the contract, you can return your car to the dealer. When you do that the car is inspected by them to see if there’s any damage. If there is you would be needed to pay for those damages. Also, they could charge you extra if you have exceeded your mileage allowance.

Purchase the car

If you decide to purchase the car, you would be needed to make a final payment. This payment is known as a balloon payment and is decided at the time of your agreement. This amount is basically your car’s worth at the end of your contract.

How much can i borrow for a new car?

Pros and Cons of Personal Contract Purchase (PCP)

Pros

Low monthly payment – The monthly repayment is lower compared to HP as the repayment is decided on the car’s value over time and not the purchase price.

Protection from any loss in value of the car – You are guaranteed a certain amount of what your car’s worth will be at the end of your contract. If it turns out to be low, you can return the car without making any further payments.

You can change the car in every 2 to 3 years – If you want to use a different car and not settle for just one car throughout your life, PCP is the right choice for you.

Cons

Not legal owner – You don’t get to own the car until you make the final balloon payment

Mileage allowance – There is a certain mileage allowance that is provided in your contract. If you exceed the allowance you could be charged with a penalty unless you own the car at the end of your contract.

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What Is Hire Purchase?

Hire Purchase (HP)

Hire purchase is a type of car finance in which you can hire a car by making a small deposit and buy it at the end by making monthly payments over a period of time. The deposit that you have to pay is usually 10% of the car’s value. For, example if the car’s value is £10,000 then the deposit amount will £1000. The rest of the amount you have to pay over 2 or 3 years according to your agreement. After, making the repayments, you have to make a final payment which gives you full ownership of the car.

You can pay more deposit if you want, if you do so you will be charged with low monthly payments. So, higher the deposit amount, lower will be your monthly repayment amount. This will help you to get the ownership of the car earlier than normal.

Who Offers Hire Purchase Car Finance?

There are a number of finance companies in the UK that offer their services if you want to buy a new car or a used one. Also, the dealers themselves also provide you with hire purchase contracts.

However, it is important to shop around, as not all the lenders provide a loan for a used car. Also, the cars on which they provide a loan can be limited. So find a finance company or a dealer who provides you with an affordable deal on your dream car.

How Much Can I Borrow in Hire Purchase?

The most common and favourite question of everyone is “How much can I borrow to buy a car?”. This depends on the car you want to buy and your credit rating. If you have a bad credit rating the finance company can provide you with a loan. But they might take away your car if you miss your monthly repayments.

Advantages of Hire Purchase

Hire Purchase car finance allows you to spread the cost over years instead of paying all the money upfront. This is beneficial for people who do not have a lot of money in savings but want to purchase a car.

The finance company charges low interest rates on this finance, and also they are fixed and do not change during your contract term.

When it comes to HP, there is no mileage allowance or restrictions whatsoever. You can drive your car as much as you want without worrying about the distance you covered.

A hire purchase car finance has a low final settlement fee for buying the car in the end compared to the other car finance options.

Disadvantages of Hire Purchase

In hire purchase, if you fail to keep up with the payments, you risk losing your car. The finance company can take away your vehicle if you miss your few monthly payments.

The monthly repayment amount tends to be more than other forms of car finance like PCP (Personal Contract Purchase).

You face the risk of depreciation more than the PCP, as buying the car is optional in PCP finance. In HP car finance you have to buy the car at the end even if its value decreases.

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