Personal Contract Hire vs Hire Purchase: Which finance type is right for you?

Date Posted 5th August 2021
Read Time 3 min read
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With various ways of financing your new car, it can be hard deciding which one is right for you. We’ve compared the pros and cons of Personal Contract Hire (PCH) and Hire Purchase (HP) so you can decide which makes the most sense:

What is PCH and how does it work?

PCH, or car leasing as it’s more commonly known, is what Hippo Motor Group is famous for. It’s similar to renting a vehicle and prioritises usership over ownership.

You make an initial payment on the car (usually equivalent to three or six months upfront), followed by set monthly payments based on the depreciation of the vehicle with a mileage limit also agreed. It is increasingly becoming one of the most popular forms of new car finance as there are no big payments at the end of the contract nor interest charged.

PCH differs from other forms of car financing as there is no option to buy at the end of the contract and you are required to hand the vehicle back.

Pros and cons of PCH

Pros of PCH:

  • Often the cheapest way to access the newest, safest, and cleanest 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
  • No unexpected expenses caused by breakdowns or MOT
  • No big payment at the end of contract

Cons of PCH:

  • You can’t end your contract early even if your circumstances change
    Credit check required
  • If you want to own the car, this isn’t an option
  • Financial penalties for exceeding mileage limit

Who is PCH ideal for?

PCH is ideal for people who want to drive the newest cars at the most affordable prices and who don’t want to outright own their car.

What is HP and how does it work?

Traditionally, Hire Purchase was the most straightforward way to drive a new car: you pay a deposit on the car based on its value followed by monthly payments over a fixed term. The longer the term, the cheaper your payments will be.

At the end of the contract, you will have essentially paid off the full value of the car and are given a nominal option fee to take ownership of the vehicle.

Pros and cons of HP

Pros of HP:

  • Simple and straightforward deals
  • You pick the terms to suit your budget
  • Accessible option for eventual car ownership
  • No mileage limits

Cons of HP:

  • Often the most expensive form of car finance depending on the vehicle
  • You’re stuck with a depreciating asset
  • Unable to sell during the term of the deal
  • Requires good credit history

Who is HP ideal for?

While the monthly payments are often higher than other forms of car finance, HP is a great option if you’re absolutely sure that you want to own the vehicle at the end of the contract.

Are there any alternatives to PCH and HP?

Personal Contract Purchase (PCP) is currently the most popular way to finance a new vehicle. This is essentially a loan, however, you don’t borrow against the list price of the car. A PCP requires you to pay a deposit on a car based on a percentage of its value, followed by monthly payments over the agreed term of your contract: these monthly payments will be based on the predicted depreciation of the car as well as the interest rate on the deal.

If you have exceptional credit history and a desire to own the vehicle outright, a personal loan with a lower APR than is being offered on a PCP deal is one alternative to financing a new car with a view to ownership.

How to get a PCP or HP deal

With the widest range of deals on new and used cars, you can apply now to see which PCH or HP deals you’re eligible for with Hippo.

Apply for a lease car now