PCP vs HP Finance - Personal Contact Hire vs Hire purchase Explained

Posted on 07 Jan 2015

Car Finance – Hire Purchase (Conditional Sale) or Personal Contract Purchase (PCP)

Jennings Car Finance

When buying a car it can feel confusing about what is the best route to take. We get asked regularly which is the better option and we suggest that it is always best to research alongside our trained specialists as to the best option for you.

 

Car finance helps you spread the cost of purchasing a new or used car as instead of paying for it in full and upfront, you can choose to pay a monthly amount.

All of our showrooms are able to offer you a range of finance products and we always promise to find the appropriate option for your preference and your circumstances.

 

There are many ways you can purchase a car. Amongst them you can choose from any of the following:

  • Hire Purchase or Conditional Sale
  • Personal Contract Purchase
  • Lease Purchase
  • Personal Loan
  • Mortgage top-up
  • Credit Cards

 

Each of these work a little differently but the general idea is that the finance company will buy the car initially and then you will repay the amount plus any interest. The finance of the car is usually secured against the vehicle for the length of the contract and throughout the contract that car will remain the property of the finance or hire company.

When an agreement ends and all the repayments have been made you will have the option to become the legal owner of the car, unless you entered into a rental or hire agreement which would mean that the car would have to be returned to the finance company or you may be able to pay off the remainder of the balance in order to obtain ownership.

 

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Jennings Used Kia Sportage

 

In this article we’d like to take the opportunity to outline the differences between Hire Purchase and Personal Contract Purchase.

 


 

Who suits Hire Purchase?

Hire purchase is ideal for someone looking for a finance agreement with the option to own the car at the end of the agreement. The contracts are generally simple and quick to arrange and we are able to assist you with this option in any of our Jennings Showrooms in order to purchase a new or used car.

 

Who suits Personal Contract Purchase?

Personal Contract Purchase is ideal for someone looking for lower monthly repayments and they prefer to change cars on a regular basis. It is a variation of a Hire Purchase agreement. The main difference is that the value of the car at the end of the contract is worked out as a Guaranteed Minimum Future Value (GMFV) and this amount is deferred until the end of the agreement. This means in order to own the car that the end of the agreement you must either finance the amount remaining or you can opt to return the car and begin a new PCP with another car. The contracts are not complex, but to ensure a GMFV the car will have a set amount of mileage per annum and of course Jennings are able to assist you with this option in any of our showrooms.

 

You may often find that our individual brands may offer a deposit contribution towards the cost of your vehicle when financed through their own credit agencies. Again this is something that your salesperson will be able to discuss with you in order to get the best agreement for your individual circumstances.

 

Jennings Used Cars

 

At the Start:

With Hire purchase, when you have found a car that you would like to purchase you would agree an amount that you wish to borrow based on the price of the car minus any deposit you can provide. Most people part-exchange their old car to help cover the cost of the deposit.

With a PCP agreement it’s very similar as you agree with the amount you want to borrow, less any deposit payment or the value of any car you are part-exchanging. The sales team would then submit your application for finance to the motor finance companies and, provided you pass the credit checks, the lender pays for the car on your behalf.

During the PCP agreement, you would pay the full price of the car plus interest, but it would be minus the guaranteed future value of the car. This ensures that your monthly payments are usually less than they would be under a comparable HP agreement over the same duration.

 

At the End:

For a hire purchase agreement, when all of the repayments have been completed, you will be given the option to buy the car and gain outright ownership. This means paying the ‘Option to Purchase’ fee which covers the admin costs to the finance company of transferring car ownership to you. This amount will have been stated in your initial paperwork before you took out the agreement. However, if you wanted to settle a Hire Purchase agreement – either partially or in full – before your agreement is due to end, then you are entitled to make early repayments to your finance company. It is always best to speak to your finance company for advice on how best to go about ending an agreement early.

Under a Conditional Sale agreement, ownership passes to you automatically once the finance is repaid in full.

 

With a PCP agreement at the end you will have 3 different options:

  • You can choose to pay the guaranteed future value in full and own the car outright
  • Hand back the keys and walk away
  • Trade the car in by using any existing equity on the car. For instance if the guaranteed future value is actually lower than the current market value of the car, you could use it as a deposit for a new finance agreement.

If you wanted to hand the car back but have exceeded the forecast mileage that you agreed at the start of the contract, you will need to pay an excess charge which is usually only a few pence per mile.

In the same way you potentially arrange for early repayments on Hire Purchase agreement, you can partially or fully settle a PCP agreement at any time, but should check the terms and conditions of the agreement as each finance company has its own procedures on how to do this.

 

PCP vs HP Finance - Personal Contact Hire vs Hire purchase Explained

 

Quick and easy to arrange in the showroom.

Lower monthly payments than Hire Purchase for a comparable car and term.

Credit agreements are regulated, which means you will have rights and protections under law.

Unless you opt out, your agreement will be regulated which means you have certain legal rights and protections.

 


 
Advantages of both Hire Purchase
and Personal Contract Purchase:

 

Hire Purchase
Personal Contract Purchase

A low deposit at the start of the agreement.

A low deposit at the start of the agreement.

Choice of payment terms of between 12 and 60 months (1-5 years).

Flexibility at the end of the agreement on what you would like to do with the car.

Repayments fixed at the same amount throughout the agreement.

Fixed monthly payments throughout the term of the agreement.

 

Things to remember

As Hire Purchase is a hire agreement with an option to buy at the end of it, the finance company will actually own the car until you make the final payment.

PCPs could work out more expensive overall than a Hire Purchase agreement for an equivalent car, especially if you decide to enter into a second finance agreement to pay the deferred future value of the car at the end of the initial PCP agreement.

Since you do not own the car until the end of the term, you cannot sell or modify it without the finance company’s permission.

Be honest with how you estimate your annual mileage as you’ll be charged for each additional mile.

Under a Conditional Sale agreement, you will automatically become the owner of the car when the final repayment is made.

If you return the car, it has to be in good condition and any damage will be charged to you.

 

 


 

The best thing we can suggest is that you take the time to talk with your salesperson as they will only provide you with the best option for your own individual circumstances.

Jennings is a regulated company and as such it is our duty to ensure that each financial agreement is designed within the requirements of our customer to ensure the best experience possible.

 


 

S Jennings Ltd registered office Parsons Road, District 2 Washington, NE37 1EZ (FCA No. 309176) and associated companies and trading names are fully authorised and regulated by the Financial Conduct Authority. S Jennings Ltd act as a non-independent credit intermediary for: Santander Consumer Finance, Black Horse and Manufacturer Finance companies: Ford Credit, SEAT VW, Mazda, Mitsubishi, Kia.

The products S Jennings Ltd provide include HP (Hire Purchase) & PCP (Personal Contract Purchase) & LP (Lease Purchase) for consumers as well as a range of business funding solutions for corporate customers.
 

Terms and conditions apply to all finance agreements that may differ the information provided in this article. Jennings are not advocating one product over another, as individual circumstances may change product suitability please consult the advice of a qualified FCA sales executive before making a decision.

 

 

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When buying with Jennings the most important things are:

Which Option Should I Choose?

Each finance option from Jennings Motor Group has advantages against other depending on individual circumstances – we recommend speaking to our Business Managers in branch or our online sales department on 0333 414 9750 to see which option is best for your individual requirements.

How Can I Find Out More?

Call into any of our branches to speak to a Business Manager specialist or call 0333 414 9750 to speak to a member of our online team.

Are Jennings Authorised By The FCA?

Yes Jennings are authorised and regulated. The www.fca.org.uk authorise and regulate firms in the UK to conduct financial services without this authorisation we would not be allowed to do so. More information is available on the fca website.

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