HP v PCP Car Financing

Choosing the right car financing option can feel overwhelming, especially with drastic changes in the UK automotive landscape. The two most popular choices for financing, HP and PCP, offer lending options to suit drivers with a variety of financial goals.

By breaking down the differences between HP and PCP financing options, you can make an informed decision about which route suits your budget and aspirations as a driver.

What Is HP Financing?

HP financing, or Hire Purchase, is the simplest car financing option. You typically pay a deposit and monthly instalments towards your loan, with the goal of owning the vehicle outright at the end of the term.

The process of an HP loan usually involves a deposit of 10% or more, with the remaining cost spread over a number of years, typically between 1 and 5. There are no complex decisions to be made at the end of the term.

This option is ideal if you want to own your own car outright, and seek to budget towards this. This option is typically more expensive, but it does promise the reward of ownership in the end. While you will be responsible for the car’s depreciation, you are also free to drive as much as you like, with no mileage restrictions.

What Is PCP Financing?

A PCP loan, or Personal Contract Purchase, offers more flexibility when it comes to car financing. You will typically pay a lower initial deposit and monthly instalments, but you won’t own your car when the loan ends. Instead, you have three options: to return the car, exchange it for a different one, or make a ‘balloon payment’ to own the car outright.

With a PCP loan, the monthly payments are typically based on the car’s depreciation, rather than working towards the cost of total ownership. PCP financing offers a lot more options if you are unsure of how you wish to proceed at the end of your loan.

Some of the restrictions of PCP financing include a mileage restriction, which usually limits you to the UK average mileage, and payments for damage to the car. While this loan may be cheaper than the HP alternative, it is still worth considering these limitations.

Key Differences

Which Is The Best Choice?

The car industry in the UK is moving towards a future where electric vehicles are the norm. Choosing whether to opt towards electric and hybrid options can be confusing, but how does it effect financing options?

If you are interested in financing an electric or low emission vehicle, either option could work for you. However, if you are considering financing a petrol or diesel engine, it is worth considering how this will work in the future. As electric vehicles become the norm, petrol and diesel engines will likely be subject to higher rates of tax, they may also be restricted more by low or zero emission zoning.

Choosing a PCP loan can protect you for the future, giving you more options at the end of your term. Choosing a petrol or diesel car now needn’t be a worry when you can opt for an electric or low emission car when your loan ends. HP borrowers, on the other hand, will own their vehicle outright, which could make it harder to transition towards electric.

In general, HP loans are more suitable if you are clear about your goals for car ownership, and want to build towards owning a vehicle outright. They are also suitable if you are comfortable with budgeting towards this goal as part of long-term financial plans.

On the other hand, PCP loans are more suitable if you have a stricter budget for car financing, with the added flexibility of being able to upgrade your car at the end of your loan. If you aren’t interested in owning a car outright, a PCP loan may be a suitable option.

Why Use A Broker For Car Financing?

A car finance broker can help you handle the complicated factors in car financing like paperwork and negotiations. This allows you to prioritise your budget and needs while making a sensible choice backed by professionals.

A broker can also help you to compare competitive deals, whether they are for HP or PCP loans. Through a broker you can find the best deal for you, at the right price.

Both HP and PCP financing options have their pros and cons, and your ultimate decision will come down to a number of personal factors. Understanding which type of loan is right for you can be the first step towards financing your dream car.

Looking for competitive car financing options to suit your long-term goals? Get a quick 60-second quote from us today!

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FINANCIAL DISCLAIMER

Rates from 10.9% APR. Representative APR 19.9%.

Representative Example: Borrow £6,000 with £1,000 deposit over 48 months with a representative APR of 19.9%, the monthly payment would be £153.29, with a total cost of credit of £2,357.76 and a total amount payable of £7,357.76.

Car Loans UK is a broker not a lender.