HP vs. PCP Car Loans: Which Is The Best Option With Bad Credit? 

Buying a car is for most of us a major financial decision. One of the biggest questions when looking at cars is whether to buy outright or choose a financing plan. While both options have their perks, making the right decision can depend on a number of personal factors.

The kind of things you need to consider when buying a car include: your current financial situation, your future financial goals, and your preferences when it comes to the type of car you want.

If you’re currently weighing up your options, here are the perks of getting a loan, compared with the option of buying outright.

What Is Financing?

Financing a car means purchasing a car with a credit agreement from a lender. There are several different types of financing. The process involves paying over a set period of time in regular instalments, instead of paying with a lump sum up front.

Financing A Car

Building and Preserving Savings

Financing a car is a sensible choice if you want to preserve and build savings while still having a car to drive. Instead of paying for a car in one go, you will pay smaller monthly instalments to the lender until the car is paid off.

This way, you can budget money from your salary and savings for the payments, as well as for other uses, like regular expenses and investments. This can be particularly useful if you are saving for other large expenses like a house.

Monthly payments should suit your needs. Choosing a car with the right monthly payment in mind is sensible to ensure the loan is repaid on time

Building Credit

Much like a credit card, a car loan contributes towards building credit. Making timely payments on your loan can positively impact your credit score. This is because the timely payments demonstrate a responsibility towards your loan.

Building a good credit score can be beneficial for future loans, like a mortgage, and can help to lower your future interest rates.

Drive The Car You Want

Cars are an expensive purchase. Choosing a loan might mean you can drive a newer, or better-quality vehicle, which you could not otherwise choose if you were paying with cash. 

With a car loan, you may have more choice when choosing a car. This could allow you to opt for the features you want and need instead of settling for something less useful for your lifestyle at a lower cost.

Flexible Repayments

When looking for a car loan, there are many lenders who will offer customisable terms. This allows you to make a suitable purchase that suits your financial goals and repayment aims.

With a car loan, choose a repayment period and monthly payment that fit your budget and lifestyle.

Hire Purchase Vs. Personal Contract Purchase

When financing a car, there are two key types of loan that are on offer. These are known as Hire Purchase (HP) and Personal Contract Purchase (PCP). Choosing the right loan for you can help you work towards your personal goals for owning a car.

A hire purchase is for those who are looking to own their car outright at the end of the repayment period. This means the choice of what to do with the car is up to you. As a result, the initial deposit and repayments will usually cost more than a PCP loan.

A PCP loan offers lenders a lot more choice when it comes to their car. At the end of the repayment period you will typically have three options:

• You can trade the car in for a new one with a new finance agreement
• You can pay the car off in one lump sum, known as a ‘balloon payment’
• You can return the car at the end of the term

PCP is a great choice if you want to upgrade your car or look for something new at the end of the loan term. The deposit and payments are also typically cheaper. Yet, there are usually terms on a PCP loan that include a mileage limit and charges for any damage done to the car during the loan period.

When To Choose Car Financing

Financing a car might be the right option for you if:

• You want to preserve cash or build savings
• You’re interested in building credit
• You want a better car without depleting all your savings in the process

Buying A Car Outright

No Interest And Lower Cost

When you buy a car outright, there are no monthly payments or interest charges to make. This kind of financial freedom is attractive to some buyers.

Because there is no interest, buying a car outright from the beginning will work out cheaper than most loan. This is especially true when compared with HP loans. If you are interested in owning your car outright at some point, this is worth considering.

A Simple Process

Buying a car outright from a dealership, garage, or individual seller can be a very quick process. There is less negotiation and typically you can drive away with a car immediately.

While this is a nice prospect, it isn’t always possible. Paying with cash could limit you to having a car that doesn’t suit your needs as a driver.

No Risk of Repossession

When financing a car, keeping up with repayments is essential. If you fail to keep up with repayments, you may incur late fees and your car could be repossessed.

Owning your car outright prevents this from happening. Because the car is yours, you needn’t worry about setting money aside for this purpose.

When To Choose Buying Outright

• You have the funds available
• You want to own a car outright
• You want to save money on interest

Financing Vs. Buying: Which Is The Best Choice?

The car market in the UK is ever evolving. Nowadays, it can be difficult to know which option is the best choice for the long term.

Choosing to finance a car can be a good decision for several reasons. By financing a car you wouldn’t be able to buy outright, you can enjoy new technology and modern features without shelling out a lot of money in one go. This means you can enjoy things like better fuel efficiency, and environmental options that keep you up to date with today’s market.

In the next few years electric cars will likely take over the market. Currently, the UK government plans to stop the sale of petrol or diesel cars by 2030. Having a PCP loan means you can trade in an older model at the end of your term for a car that fits the new requirements.

Interested in competitive car financing options to suit your lifestyle? Get a quick, 60 second quote today.

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