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Car finance: HP vs PCP, what’s the difference?

Car finance: HP vs PCP, what’s the difference?

Car finance is by far the most popular way to pay for a car nowadays. In fact, according the Finance and Leasing Association, almost 90% of vehicles are now purchased through finance. The two most popular agreements are Hire Purchase (HP) and Personal Contract Purchase (PCP), but what’s the difference between them?

Hire Purchase (HP)

HP is the traditional form of car finance. You simply choose your new car, pay an initial deposit if required too and spread the remaining balance over the agreed term. Once all the payments have been made and the agreement has come to an end, you will own the vehicle outright.

Personal Contract Purchase (PCP)

A PCP is split into three sections; an initial deposit; monthly payments and a guaranteed minimum future value (GMFV). This may also be known as a balloon payment or optional final payment. When all the monthly payments have been made, you are left with two options; pay the GMFV and own the car outright or don’t pay it and simply hand the car back to the dealership.

What is a GMFV?

The GMFV is the value of your car at the end of the finance agreement, taking into consideration the age of the vehicle and the additional mileage you will have agreed too. You are allowed to go over your quoted mileage but it may lead to extra costs; as will any repair work that will need to be carried out.

There are benefits to both forms of car finance. PCPs are better suited to those who like to change their cars every few years. The monthly payments basically cover the depreciation of the vehicle so tend to be lower than a traditional HP. HP allows you to spread the cost of the car out over a longer period of time with no mileage restrictions to consider.

You can take a look at our stock here and If you have any questions about car finance, please don’t hesitate in contacting one our finance advisors on 0208 969 5511.

Administration Fees

To ensure we can offer all our customers the best value we have tailored our administration fee to our customers individual circumstances. This fee is a compulsory fee and applies to all our cars depending on your below circumstances:

Visit Cargiant's T&Cs for further information