Hire purchase vs Personal contract purchase
Please note that the below is information only, we do not advise on any specific product. We recommend researching into suitable products that would fit your budget and circumstance. Our team are available to answer any questions. Certain lenders only offer certain products, lender acceptances are dependent on your status and circumstance.
Hire Purchase (‘HP’)
- Hire Purchase is a fixed cost, fixed period loan linked to (or secured on) the purchase of a vehicle.
- Doesn’t always need a deposit, however this can be lender dependent. If you wish to put one down it could lower your repayments.
- If you wish to own the vehicle once all payments have been made, this style of agreement may be suitable for you.
- Please note that you will not ‘own’ the vehicle until you have made all payments to the finance company.
- The payments will be agreed prior to you signing the agreement on a certain APR and term. There are no mileage restrictions on this type of agreement as it assumed you will own the vehicle at the end of the agreement.
- This style of agreement usually has a small option to purchase fee at the end of the agreement.
Personal Contract Purchase (‘PCP’)
- A PCP could give you flexibility at the end of the agreement and a lower monthly payment compared to alternative product.
- This product could be suitable for customers who would like a lower repayment or the option to hand the vehicle back at the end of the term.
- Some lenders may ask for a deposit.
- A mileage allowance and term will be agreed, please note if the car is used more than agreed, costs will be higher.
- You must find out the Guaranteed Minimum Future Value (GMFV) of your vehicle. This will calculate your ‘balloon’ or final payment at the end of the agreement.
- At the end of your term, you have the option to pay the ‘balloon’ payment, hand the vehicle back or exchange the car for another (this is dealer dependent).
- You will not own the car until all payments are made.
- Make sure you read the agreement in full for any additional fees. These could include going over the mileage allowance or wear and tear on the vehicle.
- You are not guaranteed to have any equity in the vehicle at the end of the agreement.
Conditional Sale Agreement
- Similar to a HP agreement but you have to commit to owning the vehicle at the end of the agreement (no option to purchase fee, no option to hand back).
- You can put a deposit down if you have one, some lenders may have this as part of their criteria.
- This is a suitable agreement if you definitely want to own the vehicle at the end of the agreement.
- The lender owns the vehicle until you have made all payments to them.
- There are no mileage restrictions, payments and terms are set before signing.
- Similar to a conditional sale, as you will own the vehicle once all payments have been made.
- You may be asked to make ‘advanced payments’ which form a deposit.
- A sum of money can also be deferred to the end of the agreement, this will be calculated on the mileage and age, like that in a PCP.
- You must pay the deferred payment, its not an optional payment, please ensure you calculate this into your budget.
- This could be suitable for a customer who definitely wants the car and would like to lower the monthly repayments by making a ‘deposit’ payment at the beginning and a ‘deferred’ payment at the end of the contract
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Representative example: borrowing £8000 over 5 years with a representative APR of 21.9%, a fixed annual interest rate of 21.9%APR and a deposit of £0.00, the amount payable would be £220.67 per month, with a total cost of credit of £5420.20 and a total amount payable of £13,240.20
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