Know your car finance: What does PCP, PCH, HP mean?

Date Posted 30th March 2022
Read Time 4 min read

Everyone loves an acronym IIRC. But with so many floating around when it comes to types of car finance it can understandably get a bit confusing when consumers are looking at the most suitable way to fund a new or used car.

Whether it’s PCP, HP, or PCH, these types of car finance bring their own unique pros and cons. So below we’ll not only clue you in on the meaning behind the terms but also go over the finer details and benefits so you know which works for you whether you’ll be using the car for business or personal use.

Here are the different types of car finance

PCP = Personal Contract Purchase

Best for?

Private individuals who want a hassle free and cost effective way to finance and maintain a vehicle, or want to drive a more expensive car than they would ordinarily buy outright, and would like to decide later whether to keep it or hand it back.

Details

With this type of car finance, it depends on how well the car holds its value to determine how low the payments will be. A funding agreement and fixed monthly payments are calculated based on the vehicle’s expected devaluation – the difference between the resale value at the end of the agreement and the original purchase price, as well as age and mileage. Part of the vehicles capital cost may be deferred into a Balloon Payment at the end of the agreement, which equates to the anticipated market value of the vehicle at the end of the agreed leasing period.

The Benefits

  • Optional ownership
  • Flexible deposits
  • Fixed monthly payments
  • Potential positive equity

Learn more about the advantages and disadvantages of PCP

PCH = Personal Contract Hire (aka Leasing)

Best For?

Those who want the flexibility to change their vehicle often, with no interest on monthly payments.

Details

Personal Contract Hire is like renting a vehicle over a long term and prioritises usership over ownership.

The process is similar to a PCP as you decide how long you want your contract to be on the make/model, how many miles you intend to do annually, and how much you want to make as an initial payment (usually equivalent to three or six months upfront).

This information is then used to decide how much the vehicle will depreciate/lose value over the term of your contract to set the monthly payments you make on the vehicle.

Where leasing differs from Personal Contract Purchase or Hire Purchase is that, at the end of your contract, you simply hand the car back with no further commitments or payments to be made and no option to make a final payment to own the vehicle.

The Benefits

  • Often the cheapest way to access the newest, safest cars
  • Delivery, breakdown, warranty, and road tax are all included in the price
  • Payment plans can be flexible to your needs with you choosing how much you want to pay upfront and per month
  • No unexpected expenses caused by breakdowns or MOT
  • No big payment at the end of contract

Learn more about the advantages and disadvantages of PCH

HP = Hire Purchase

Best For?

Those who want to own a vehicle and don’t mind paying slightly higher costs over the long term until they have paid off the value of the car.

Details

You enter into an agreement with a finance company over a fixed period with fixed instalments, and are recognised as the legal owner. The vehicle is essentially collateral for the loan and upon payment of the option to purchase fee the vehicle becomes yours.

The Benefits

  • Open to a wide range of consumers with bad credit
  • Guaranteed ownership at the end of the contract
  • Flexible contract

Learn more about the advantages and disadvantages of HP

Conditional Sale

Best For?

Those who want to own a vehicle and don’t mind paying slightly higher costs over the long term until they have paid off the value of the car.

Details

Almost identical to Hire Purchase, a Conditional Sale registers a vehicle in your name, with fixed payments made to pay off the cost across the term of the agreement.

Where Conditional Sale differs from Hire Purchase is in the fact that there is no ‘option to purchase’ fee at the end of the term. Instead, when the final payment has been made, you own the vehicle. Failure to make a payment may see the car repossessed as the agreement is secured against the value of the car.

The Benefits

  • Open to a wide range of consumers with bad credit
  • Guaranteed ownership at the end of the contract
  • Flexible contract

Some lender’s such as Moneybarn specialise in Conditional Sale agreements.