CAR FINANCE EXPLAINED

The only guide you need before buying a car on finance (5 minute read).

PCP vs HP vs PCH – what is the best finance plan for your next car purchase?

Making a car purchase is a big commitment and finding the most suitable vehicle could be quite challenging at times, especially if you are opting for car finance. Therefore, it is essential to understand the different car finance options available on the market and the benefits of each one.

There are three main finance types to choose from:

- Hire Purchase (HP), also known as Conditional Sale (CS)

- Personal Contract Purchase (PCP)

- Personal Contract Hire (PCH)

Hire Purchase (HP), also known as Conditional Sale (CS)

Financing a car purchase through HP or CS is the most straightforward plan available at your local dealership.

How does it work? The cost of the car is divided across one deposit payment followed by equal monthly instalments, usually for the duration of 3 to 5 years.

The main benefit is no balloon payment at the end of the term. When the contract finishes, you own the car without having to make any additional payments.

Personal Contract Purchase (PCP)

How does PCP work? PCP refers to a finance agreement comprised of a deposit and equal monthly instalments, typically spread over 3 to 5 years with an annual mileage allowance.

The main benefit of PCP is flexibility - it offers you three options at the end of the contract. When the term ends, you have the option to make a lump sum payment (known as a balloon payment) if you decide to own the vehicle. Alternatively, you could use any equity left to put down as a deposit on a new car and upgrade your PCP contract. If neither of these options is suitable for you, you could return the vehicle to the finance company at the end of the term.

Personal Contract Hire (PCH)

What is PCH? PCH is a lease agreement with an annual mileage allowance for a brand-new vehicle that you can drive over a set period. These contracts typically last between 2-4 years.

The main benefit is that you have the option to include vehicle servicing, maintenance, and repairs in a fully maintained lease agreement for a small surcharge. Additionally, you will be able to choose a more premium model for more affordable monthly payments.

So, which type of finance is best for you?

“I want to keep my monthly payments low.”

If low monthly payments are your priority, then PCP is your best option. This is because you are not paying monthly payments towards the full cost of your car, but a small portion of the credit.

“I want to change my car every few years.”

If you are not intending on keeping your car long term, opting for either PCP or PCH would help you tick all the boxes. PCP allows you to change your car for a different one instead of paying the final repayment at the end of the agreement. Alternatively, PCH lets you choose the length of the finance agreement, ranging from 1 to 4 years.

“I want to own my car at the end of the agreement.”

If long-term ownership is what you are looking for then opting for HP would be the most suitable choice. Once you make the final payment of your car finance plan, you will own the car. You could also opt for a PCP, as this allows you to pay a lump sum payment in order to own the car at the end of the agreement.

“I want servicing and maintenance included in my finance agreement.”

To enjoy peace of mind motoring, PCH offers servicing, maintenance & repairs in the finance agreement for a small additional monthly fee.

All our new car offers show a representative example of the finance agreement but to receive a more personalised quotation please don't hesitate to get in touch with us. Within our used car Supersearch, each car has an adjustable finance calculator, which you can tailor personally to suit your needs.