PCP or Hire Purchase

Most dealers are really pushing for PCP at the moment, and don’t get us wrong, there is a place in the world for them. A PCP, in effect, requires you to pay down the amount the car is likely to depreciate during the agreed term you have it, rather than the full value of the car. So, you get a thing called a GFV (Guaranteed Future Value), a price you will be guaranteed for the car at the end of the term so you will have three choices when the agreement ends.

  1. Pay the remainder and keep the car
  2. Give the car back to the lender and walk away with no negative effect on your credit file
  3. Part exchange, or sell the car for more than the GFV, and pocket the difference.

So, if you like to have the newest models, but you are on a limited budget, then great. You can have a new, or nearly new car, for a relatively small monthly outgoing compared to Hire Purchase….. or can you?

PCP’s have problems, and can be very difficult to get out of once started. You will, for example, be asked to declare your mileage at the start. If you over-declare them, and then hand the car back at the end, you have paid for miles you haven’t used. Worse still, if you have under declared your mileage, and you do more miles during the term than you originally thought, you may be in for a big bill at the end to hand it back. A change of job midterm with a longer commute, and you could be in for a shock when you hand it back. There is also issues over condition. Chips, dents, and general damages can be charged for by the finance company at the end. If you live in a city where knocks and bumps in crowded car parks are a fact of life, you again may be paying a significant bill at the end of the agreement.

Hire Purchase is much more flexible. There are normally no mileage restrictions, and the car is intended to be yours at the end, so if you are unlucky enough to damage it, you are not obliged to fix it, or pay for the work to be done at a certain time. However, the payment can be a little bit higher, but most PCP’s are over 4 years, most HP can be over 5 years. If you compare a 5 year HP, with a 4 year PCP, there isn’t usually much difference in payment unless the car you are buying is very expensive, and likely to hold it’s value well too – which is not a frequent combination.

So, in a nutshell, if you do not expect any changes in your life over the term that will affect how many miles you do, you keep your cars in tip top condition, you want a car that stretches the budget a little, and you are happy with that risk, then a PCP could be for you. If you want flexibility, Less onerous maintenance conditions, and to own the car at the end, maybe HP is a better all-round option.