A PCP agreement requires you to pay an initial deposit followed by fixed repayments over an agreed period of time up to 48 months. These payments cover the depreciation in value between the sale price and the Guaranteed Future Value. At the end of term, you can return the vehicle, pay the Guaranteed Future Value to buy outright, or trade in for another vehicle.
The advantages of a PCP agreement include lower monthly repayments compared to other purchase plans, the opportunity to return the vehicle with nothing further to pay, and the chance to change vehicles on a regular basis.
You should always consider the annual mileage you plan to cover as any miles in excess of this will be charged extra. Plus, you will be responsible for all maintenance and insurance throughout the agreement, despite not being the outright owner.
Yes, but you will be required to request a settlement figure. This will represent the difference between what the car is worth and what you still owe - a figure that may result in negative equity.
Many Hire Purchase agreements require a deposit of at least 10% of the vehicle’s value. The remaining balance will then be paid off in fixed monthly instalments over a 12-60 month period. Once all the payments have been made, you’ll typically be required to pay a small ‘Option to Purchase’ fee - often £100-£200. You’re then the outright owner of the vehicle.
Hire Purchase enables you to spread the full cost of vehicle ownership over a set period of time, making purchasing more affordable. There will be no mileage restrictions and you will be the outright owner of the vehicle at the end of the agreement.
Monthly repayments for a Hire Purchase agreement may be more expensive in comparison to PCP arrangements, and you will not be the overall owner until the last payment is made. You will also be responsible for insurance and maintenance costs, and cannot sell the vehicle without first settling your finance.
Settling early can be achieved by requesting a settlement figure from your financing company. This will cover the outstanding balance of the vehicle and any interest you owe.
Most PCH contracts require you to pay three months’ rental upfront, followed by fixed instalments over a period of 24 to 60 months. You may have the option of adding a maintenance package to your agreement, which covers servicing and MOTs. At the end of the agreement, you hand back the car.
PCH is a hassle-free way to obtain a vehicle, as there’s no responsibility of ownership at the end of the agreement. The monthly payments are typically more affordable than those where you become the outright owner of the car, and you can change your vehicle every few years.
Annual mileage is agreed at the beginning of the term, so ensure your estimate is as accurate as possible, since excess mileage will be charged per mile when you hand back the car. It’s also worth noting that you won’t own the vehicle, or have the option to purchase it, so any damage incurred will be charged at the end of the agreement. You’ll also be responsible for the insurance and maintenance of the vehicle throughout the lease.
While it may be possible to cancel your agreement early, it’s not generally recommended, as charges will likely apply.