Car Finance Explained. PCP, PCH or HP?

With so many finance options available, it can be difficult deciding what option is right for you. Here at Williams Group, we want to make that process easier by giving you all the information to help you decide what is right for you.

Car finance has been on the rise for a number of year, figures from the Finance and Leasing Association show that the value of loans used to make vehicle purchases doubled between 2011 and 2016, while finance deals are currently used in around 8 in every 10 new-car sales. But if you're new to car finance, the options available to you can seem confusing.

Our guide will take you through the three most popular options available to you here at Williams Group - Personal Contract Purchase (PCP), Personal Contract Hire (PCH) and Hire Purchase (HP) - to help you make the right decision when financing your next new car.


Personal Contract Purchase (PCP)​

Personal Contract Purchase (PCP) is the most flexible option available to our customers. You'll pay a deposit at the start of the policy followed by regular monthly instalments during the contract.

What makes PCP so flexible is that these monthly payments are paying off the cars depreciation, and not the cars value. At the end of the fixed term agreement, there is a final payment known as a balloon payment. You'll only need to pay this if you wish to keep the car. During your PCP agreement you'll also have the option to upgrade to a newer car before the contract ends, or you can wait until the end of the agreement and hand the car back without having to worry about resale.

How does PCP work?

At the start of the PCP contract, we will give you a Guaranteed Future Value (GFV). This is set and is the expected future value of the car when your contract ends. This becomes your optional balloon payment.

For you, this means you aren't paying back the full value of the car, instead you're monthly repayments are the difference between what the car is worth today and what it will be worth at the end of your PCP agreement (the depreciation) plus interest. This in turn makes for lower monthly payments when compared to other finance packages that give you the option to keep the car at the end of the agreement.

Once your Personal Contract Purchase (PCP) agreement ends, you'll have three options:

  1. Pay the balloon payment and keep the car
  2. Hand the car back ti us. - We have agreed the final value, so handing the car back to us will settle the deal
  3. Part exchange for a new car. - We can offer you a free financial health check to see when the best time to upgrade your car is.

Can I settle my PCP deal early?

You can normally settle your deal early, however we will require you to pay off the difference between what your car is worth now, and what you still owe (negative equity). On the other hand, you may find that at the end of your term your car is worth more than the Guaranteed Future Value, which means you’ll have some positive equity to contribute towards your next car. Take our free financial health check to see when the best time to upgrade your car is.

Pros

  1. Lower monthly repayments when compared to other finance options where you can keep the car at the end of the contract.
  2. If the car is worth more than the Guaranteed Future Value (GFV) at any point in the agreement, you can use this positive equity as a deposit towards a new car.
  3. You can hand the car back if you decide not to buy it and simply walk away once the final payment is made.
  4. You get to drive away in a new or used car without having to worry about selling it on in the future

Remember...

If you want to buy the car, you will need to pay the final balloon payment or Guaranteed Future Value (GFV)

You will need to agree a mileage allowance at the start of your contract, if you go over this, it will effect your GFV and you'll have to pay a fee for the excess millage when you return the car.

You can't sell the car without settling the finance as you wont own the car until you have made all of the payments.

You'll need to keep the car insured for the full amount of the outstanding finance. You are still liable for the full amount of the vehicles value if anything happens to it. Speak to our team about gap insurance and how this can protect you financially if the worst was to happen.

You are also liable for the proper maintenance of the car while it is in your possession. You can speak with our team about a service plan for the duration of your contract. This will spread the cost of your services for the length of the contract and it can be factored into your monthly payments.

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​Personal Contract Hire (PCH)

Personal Contract Hire (PCH) is a long-term rental that suits people who aren't looking to buy the car or own it at the end of the agreement and who don't want to change their car during the fixed term. You will be leasing the car for an agreed perioud of time by making fixed monthly payments and when the contract expires, you will return the car to us. 

How does PCP work?

At the start of the PCH contract, You'll pay an initial rental, usually between 3 and 12 months worth of payment. You'll then make a fixed monthly payment for the agreed contract length before returning the car to us.

Can I settle my PCH deal early?

No. Once you have agreed to the terms of the contract, you are tied in for the full duration. There can be significant charges if you want to exit any earlier than the agreed term.

Pros

  1. You get to drive away in a new or used car without having to worry about selling it on in the future.
  2. Maintenance can be included in most PCH packages and can be built into the repayments resulting in trouble free motoring during your contract
  3. Lower monthly payments compared to finance packages that let you keep the car at the end of the contract

Remember...

There is no option to buy the car at the end of your Personal Contract Hire (PCH) agreement. 

You will need to agree a mileage allowance at the start of your contract, if you go over this, you'll have to pay a fee for the excess millage when you return the car.

You are tied into the contract until the end of the term and will have to pay fees to exit early. 

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Hire Purchase (HP)

Hire Purchase (HP) is ideal if you know you want to keep the car at the end of the agreement and don't plan to change it before the end of the agreement. Hire Purchase (HP) makes it more affordable to get into and own a new car sooner as it combines a customer deposit up front with monthly instalment for the contract length until the car is paid off.

How does HP work?

At the start of the HP contract, You'll pay an initial deposit. You'll then make a fixed monthly payment for the agreed contract length that pays back the full value of the car. At the end of the agreement, you'll own the car.

Can I settle my HP deal early?

Yes. If you'd like to settle your agreement early, you can pay off the outstanding balance. There may be interest charges if you want to exit any earlier than the agreed term.

Pros

  1. You get to drive away in a new or used car sooner than expected and it might be worth more than you thought you could afford
  2. Unlike PCP and PCH contracts you won't need to agree a mileage at the start of the HP agreement.
  3. Once you make the last payment and any fees associated with your contract, you'll own the car.

Remember...

A Higher Purchase (HP) agreement will have higher monthly payments compared to a Personal Contract Purchase (PCP) or Personal Contract Hire (PCH) agreement as you are paying back the full value of the car.

You won't own the car until you have settled the finance, and if you sell it before the final repayment, you'll need to pay off the closing balance plus any interest and fees.

You need to keep the car properly insured and maintained until the full value is paid off.

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Contact Us

To find out more, you can contact one of our retail centres in Bolton, Liverpool, Manchester, Stockport or Rochdale.

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OFFERS

Williams Group has a wide range of new and used vehicles to suit everyone. Explore our new car dealerships or take a look at our wide range of used car.

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