PCP is relatively simple to understand as it enables you to spread the cost of your vehicle over a period of time up to 48 months. Through monthly repayments, you will be paying off the depreciation in value of the model - the difference between the sale price and the Guaranteed Minimum Future Value at the end of the term. At this point, you will be able to pay off this figure to become the full owner, return the vehicle, or trade in for a new deal.
There are several advantages to choosing a PCP agreement. These include lower monthly repayments compared to other purchase plans, as well as the opportunity to return your car at the end of the agreement with nothing further to pay. This makes it an ideal solution for those looking to change vehicles on a regular basis.
It’s a good idea to ensure you allow for adequate annual mileage when tailoring your package, as any excess mileage will be charged on a per mile basis. It’s also important to note that you will be responsible for all vehicle maintenance and insurance throughout the agreement, even though you won’t be the outright owner.
You can settle your PCP agreement early, but this will require you to obtain a settlement figure. This figure is essentially the difference between what the car is worth and what you still owe, and settling early 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 own your chosen vehicle outright and pay for it in monthly installments over an agreed time period. There are no mileage restrictions in the contract, and you don’t need to return the car at the end of the agreement.
Monthly repayments for Hire Purchase are often more expensive than those for PCP agreements, as you are paying for the vehicle’s value rather than the depreciation cost. Remember, you will not be the owner until the final payment is made, so you cannot sell the vehicle without settling your finance first.
You can settle your HP agreement early by requesting a settlement figure from your lender. This will cover the outstanding balance of the vehicle and any interest you owe.
A Personal Contract Hire agreement will typically require an upfront payment of three months’ lease, after which you pay fixed instalments for between 24-60 months. You may be able to add a servicing package to your agreement to cover maintenance, and at the end of the term you simply return the car to the dealership.
PCH is a great way for those on a budget to secure the vehicle of their dreams, since monthly payments are usually less than agreements where you become the outright owner. It’s also hassle-free, and enables you to change your vehicle every few years.
PCH contracts require you to specify an annual mileage at the beginning of the term, and any excess is charged on a per mile basis. While you won’t be the owner of the vehicle, and will not have the option to purchase it, you will be responsible for insuring and maintaining it. Any damage incurred will be charged at the end of the agreement.
Your contract can be cancelled early, but this often results in additional charges.
Also known as Personal Lease, Personal Contract Hire is a long-term leasing agreement that enables you to hire a vehicle with fixed monthly payments, then return it to the dealer at the end of the agreement.