Personal Contract Purchase (PCP) or Hire Purchase (HP): Car Finance Comparison

PCP finance stands for Personal Contract Purchase. With PCP, you pay lower monthly payments than a comparable HP agreement because you are only paying the difference between the value of the car when you bought it and the value it'll be worth at the end of the finance agreement (the Guaranteed Future Value or GFV). Therefore, you don't pay the total value of the car, only it's predicted depreciation. 

At the end of the contract there are three options: 

1. Trade the car in for a new deal - your car may be worth more than its predicted value so you may have equity in the car which you can use as a deposit for your next car. 
2. Buy the car - the lender predicts what your car is worth at the end of the contract and you can buy the car either outright or via finance using this predicted value.
3. Return the car - simply hand the car back with nothing more to pay if the car is in good condition and the agreed mileage limit has not been exceeded. This protects you if the car ends up being worth less than was predicted.

HP stands for Hire Purchase. With HP, you pay monthly instalments until the total cost of the car is paid. Once you have paid the final agreed payment, you'll own the car in full. Because the vehicle will be yours at the end of the agreement, there are no mileage restrictions and you don't need to worry about excess wear and tear.

HP is a good option if you plan to keep the car after the finance has finished. 

With PCP finance, there may be additional charges if you exceed the mileage allowance or the car is poor condition when you return it. This is because these factors lower the value of the car and were not accounted for in the original finance agreement and monthly payments.

You may be expected to pay a fee per mile for every mile you have exceeded the policy and you may have to pay for repairs to the car if the car is in worse condition than normal wear and tear.

HP payments will normally be higher than PCP, and you'll usually pay 10% of the total price of the car as a deposit. . Once you have completed the HP agreement there are no further costs and you own the car.

Whereas, PCP contracts are based on the minimum guaranteed future value (GFV) of the car and you pay the difference between that value and the car's current value. This means the monthly cost is lower. However, if you want to keep the car you'll need to budget for the final 'balloon' payment. 

You pay interest on both PCP and HP finance. bravoauto offers finance at competitive interest rates.

If you pay the remaining balance in full you can end your PCP or HP agreement early. Or if you have paid half the total amount payable and are up-to-date with your payments, you have the right to hand the car back under your voluntary termination rights. 

Ending a HP agreement will mean you own the car outright, whereas with PCP you'll need to ensure your car's condition and mileage are within the agreed limits before handing the car back to prevent any extra charges. 

Keeping the car until the end of the agreement may give your more choice as to your next steps.