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Should I get a Personal Contract Purchase or Hire Purchase arrangement when buying a car?

should i get a personal contract purchase or hire purchase agreement when buying a car?
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With outright car purchase up front being out of the question for most of us, many drivers in the UK tend to lease vehicles – but that way the car will never actually belong to you, so how do you get finance on a vehicle that will ultimately all be yours? The two most popular options are HP and PCP, so which his right for you?

Personal Contract Purchase (PCP) is a simple method of financing a car purchase: All you do is pay a relatively low monthly rental fee, and at the end of a predetermined length of time you have the right to buy the vehicle for roughly the difference between what you’ve you already paid in rental and the purchase value of the vehicle. This types of scheme comes with a number of key advantages:

Personal Contract Purchaseshould i get a personal contract purchase or hire purchase agreement when buying a car?

Firstly the monthly payments are fixed at a fairly low level, and your initial down payment is usually relatively small as well. This gives you access to some more prestigious vehicles than you’d otherwise be able to afford. You can also refinance the final payment – known as a balloon payment if you wish, giving you even more flexibility.

However, with a PCP you’ll be liable for repairs on any serious wear and tear on the car – and the car dealer is likely to have a different opinion on what’s serious than you are.  You’ll also have to arrange comprehensive insurance as the vehicle won’t be yours until you make the balloon payment, plus there’s usually a high mileage charge built into PCP arrangements as well.

Hire purchase

Hire purchase, on the other hand, is a more traditional arrangement that’s been around for decades: You pay a deposit – usually between 10% and 50% of the value of the vehicle – and then pay the remaining value off as a loan. The lender is therefore effectively the owner of your vehicle until you pay off the last installment, and the cost of your loan is based on the new value of your car.

The main advantage with hire purchase is that you can generally get access to a vehicle quite easily and get a good rate of interest on the loan component of your deal, as your lender has your car as security. Another advantage will materialise if you make a large downpayment, as this can lead to very low interest rates, sometimes even zero.

However, should you default on an HP agreement you can find your car is repossessed very quickly, and if your credit rating is not so good you can end up paying an extortionate amount of interest.

Ultimately, a hire purchase scheme will suit you if your credit rating is good and you have a large deposit; a personal contract purchase, on the other hand, will suit you if you want the option of backing out of the agreement part way through and looking elsewhere.

LenderLoan Amount
over 48 months
Representative APR%Cost 
£7,5007.8% APR Representative£181.46 per monthApply
£7,5005.8% APR Representative£174.94 per monthApply
£7,5005.8% APR Representative£174.94 per monthApply

 

 

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