Personal Contract Purchase 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 choosing the right one for you. We’ve compared the pros and cons of Personal Contract Purchase (PCP) and Hire Purchase (HP) so you can decide which makes the most sense:

What is PCP and how does it work?

PCP is essentially a loan however you don’t borrow against the list price of the car. It is currently the most popular way to finance the purchase of a new car.

A PCP requires you to pay a deposit on a car based on a percentage of its value. This is 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 PCP deal.

At the end of your PCP contract, you will have the choice to either return the car and make no further payment, own the car by paying off the remainder of the value (also known as a balloon payment), or use the resale value of the car to get a new car.

Pros and cons of PCP

Pros of PCP:

  • Many manufacturers offer a deposit contribution toward the cost of the car
  • You have the option to change your car when in contract
  • There’s the potential to make a profit if the model holds its value or is in demand
  • Maintenance and servicing are often included within the monthly cost
  • You can end the agreement early if you’ve paid 50% of the total amount

Cons of PCP:

  • Restrictive yearly mileage with fees charged if you go over the agreed amount
  • You don’t own the car unless you make the balloon payment at the end of the term
  • You will be charged for any wear and tear on the vehicle
  • Final balloon payment is often unaffordable requiring a loan.

Who is PCP ideal for?

PCP is the ideal option for motorists who require flexibility in the type of car they drive, aren’t sure they want to own a car at the end of the term and want low monthly payments.

What is HP and how does it work?

Hire Purchase is the most straightforward way to get a new car: you will 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 paid off the the full value of the car and are given an 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:

  • Can be 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 HP and PCP?

If you have exceptional credit history, 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. However, if you prioritise usership over ownership of a car and want the lowest monthly prices then leasing or Personal Contract Hire is likely your best option.

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 PCP or HP deals you’re eligible for with Hippo. Even better, it has zero impact on your credit score!

Apply for a lease car now