It’s never been easier to purchase a new vehicle. Whilst in the past you had to save up for months, if not years, to buy your dream car, today there are services available that make it easier for you. Taking out any form of finance is a serious commitment that should only be considered when you are confident that you are ready for such a big responsibility. We are in no way trying to discourage your from applying, in fact we are here to help guide you in the right direction. The complicated world of car finance can be very confusing, especially if you aren’t familiar with any of the terms you are likely to encounter whilst researching the topic. To make it easier for you, we’ve put together a guide exploring the two most popular ways of financing a car. Since you are reading this post, you are likely interested in car finance. You have probably done some research already so you most likely came across Hire Purchase and Personal Contract Purchase, often referred to as HP and PCP. But what exactly are they, you might wonder? Is one better than the other? Let’s find out.
Hire Purchase is perhaps the most popular way of financing a vehicle. It’s quite straightforward and because of that it’s a good option for everyone. Although it has its restrictions, its hassle-free nature makes it perfect for both people with good and bad credit.
The way it works is rather simple. All it involves is you picking out a vehicle and paying for it in regular payments, over a period of time. The term, over which you settle your debt, entirely depends on the value of the car as the more you borrow the longer it will take to pay off.
When you receive your car, all the details will be agreed upon and after you sign all documentation, you are free to collect your car.
Because the loan is taken out on the vehicle itself, if you fail to make payments, the car will simply be repossessed. This means that until you make the final payment, the vehicle doesn’t officially belong to you.
Personal Contract Purchase, or PCP for short, is similar in ways, however it offers a lot more flexibility and freedom. This makes it more ideal for someone with good credit, which you will better understand in a minute.
Whilst the main purpose of Hire Purchase is to eventually own the vehicle you’ve chosen, PCP gives you the option to part exchange the vehicle at the end of your term. You can either do that or make a large final payment to own the car. You are essentially leasing the car and unless you decide to purchase it, you return it in the end.
PCP is the perfect option for those after flexibility. If you don’t want to be stuck with a single vehicle for a long period of time, this is the option for you.
Now that we know a little more about HP and PCP, let’s compare the two. Whilst Hire Purchase is more straightforward, Personal Contract Purchase offers more flexibility. On the other hand PCP is usually better for people with good credit, leaving HP the more suitable option for those with poor or bad credit.
Both offer different things, therefore it entirely depends on what you are looking for.
If you’re struggling to decide, which option is better for you, you’ll probably benefit from speaking to a trustworthy finance provider. They will look into your circumstances and find out more about what you are after. Typically, they will guide you towards the better option, so until you speak to them, don’t rule anything out, because it could turn out the option you were looking into, isn’t necessarily the best option for you.
We hope you found our short guide helpful. If you have any finance-related questions, feel free to comment or drop us a line and we will be more than happy to help. Come back soon for more car finance-themed content.