Two common forms of car finance are Personal Contract Purchase (PCP) and Hire Purchase (HP). Depending on your personal preferences, driving habits, and financial situation, each plan has its advantages and disadvantages. Luckily, you can use a finance calculator, like the one from CarMoney, to easily calculate the cost of these options. Below, we look at the differences PCP and HP, and how finance calculators can help you choose.
What is Personal Contract Purchase (PCP)?
PCP is a car finance option where you make monthly payments over a fixed period, usually between 2 and 4 years. At the end of the term, you can return the car, pay a lump sum to buy it, or trade it in for a new car. As you’re only paying for the car’s depreciation during the contract period, monthly payments are usually lower than with Hire Purchase.
Pros of PCP
Flexibility is one of the main benefits of Personal Contract Purchase. At the end of the term, you can return the car, buy it with a balloon payment, or upgrade to a new model. Another benefit is lower monthly payments, which is attractive for those who want a lower upfront financial commitment.
Cons of PCP
PCP is flexible, but comes with conditions. The car has to be returned in good condition and within the agreed upon mileage limit. You may also be charged for exceeding these limits. Also, the big balloon payment at the end of the term can be scary, especially if you choose to buy the car.
What is Hire Purchase (HP)?
Another form of car finance is HP, whereby you pay fixed monthly payments over a fixed term and own the car outright at the end of the term. Unlike PCP, you don’t have the balloon payment and once you’ve paid the last payment, the car is yours.
Pros of HP
Hire Purchase ensures ownership. You’ll own the car at the end of the term with no further payments. You don’t have to worry about mileage restrictions or penalties, and the monthly payments are fixed, which makes budgeting simpler.
Cons of HP
The main drawback of HP is that as you’re financing the full value of the car, monthly payments are often higher than PCP. You also own the car from the start, which means you are responsible for the car’s depreciation over time.
How a Car Finance Calculator Can Help
With this understanding of the basics of Personal Contract Purchase and Hire Purchase, a car finance calculator can be used to compare both options and help you make an informed decision.
Comparing Monthly Payments
The monthly payment is one of the key factors to consider when deciding between PCP and HP. Depending on the car’s value, the deposit you’re putting down, and the length of the finance term, the calculator will show you the exact difference in payments for each option. This helps you to see which option works within your budget and helps you to see a clearer picture of your monthly expenses.
Understanding the Total Cost
A car finance calculator also allows you to compare the total cost of each plan. While the payments may be lower with PCP, the balloon payment at the end of the term could make the overall cost much higher. On the other hand, HP has higher monthly payments but does not require any lump sum at the end of the contract. Using the calculator, you can enter all the relevant details and compare the total expenditure of both options.
Making an Informed Decision
If you have to choose between Personal Contract Purchase and Hire Purchase, a finance calculator can be a great help in making the right choice. This allows you to compare monthly payments, the total cost, and the effect of your deposit, to determine which finance option is best for you. Whether you prefer the flexibility of PCP or the certainty of ownership with HP, a car finance calculator will help you make an informed decision based on your budget and long term plans.
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