Buying a new car can be quite strenuous on your wallet, especially if, like most people, you’re not in the financial position to pay for the car outright in cash. Of course, there are other ways to purchase a car – you could buy it on finance. This lets you start driving the vehicle before you have even paid the full amount for it. The most popular types of car finance are personal contract purchase (PCP) and hire purchase (HP), both of which allow you to pay in manageable instalments, but which is better?
What are the benefits of PCP Finance?
PCP finance repayments tend to be cheaper than HP because some of the car’s value is postponed to the optional final payment. With PCP, you have the freedom to choose whether or not you want to buy the car at the end of your contract or not, which is perfect for those who want to upgrade their car after a few years. Once your agreement has reached an end, you can simply return the car to a dealer without having to worry about selling it on yourself. Using a Finance Specialist such as Smile Car Finance can be a massive help as they have direct links with dealers themselves to give a potentially a cheaper deal, they can also offer special perks, such as shorter or longer contracts.
What are the downfalls of PCP Finance?
However, PCP has its downfalls as well. With this type of finance, you do not officially own the car unless to choose to buy it after the contract ends, so you will be restricted by the number of miles that the dealer will allow you to cover in the vehicle. The dealer will also expect the car to be in excellent condition when it’s returned to them – if you damage the car, or exceed the mileage limit, you could face pricey penalty charges!
What are the benefits of HP Finance?
Unlike PCP, a HP finance deal means that you won’t have to worry about finding the money for an expensive final fee if you want to keep the car. Furthermore, you are also not as tied to the car as you might think. If for some reason you change your mind about the vehicle, you can return it after you have repaid half of its full price and you will not be required to make any further payments.
What are the downfalls of HP Finance?
The major downside of HP is that you will have to pay a much larger initial deposit and larger monthly instalments on your chosen car.
Which one should I choose?
It really isn’t about which finance deal is better overall, it has more to do with which is better for you. If you are certain that you will want to keep the vehicle after your contract ends, and your monthly budget will allow it, HP finance is probably the better option. You never know what financial trouble you could find yourself in in the future and in three years, a hefty balloon payment may not be feasible. On the other hand, if you like to keep up with trends, the ability to upgrade your car every three years or so may make PCP the better option for you.