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Car Finance Explained: A Guide to HP and PCP

Car Finance Explained: A Guide to HP and PCP

Car finance can be a bit tricky to get your head around, especially if it the first time you’ve taken any finance out.

There are different types of finance to consider, with each working slightly differently to suit a variety of needs.

In this guide, we will cover everything you need to know about HP and PCP finance, to help you better understand each type of finance so that when you’re ready to buy a new or used car, you’ll know exactly what finance you’ll want to take out.

Read on to get started.

Purchase Contract Purchase

What is PCP?

Personal Contract Purchase (PCP) is one of the most popular finance options that customers can choose.

You can take a PCP agreement out on a new or used vehicle, and the Guaranteed Minimum Value (GMFV), deposit amount and the fixed monthly payments will be determined once the mileage limit and agreement length is decided.

How does PCP work?

An initial deposit is to be paid, which can either be a cash payment or you can part-exchange your old vehicle, or combine both options to pay the deposit. After the deposit is paid, the contract will be signed and your fixed monthly payments will begin.

There may be a zero deposit on some PCP agreements, however, this will mean that your monthly payments will be higher than if you had put down a deposit.

One reason why the PCP finance option is a popular choice with many drivers is that you have three options to choose from when it comes to ending your agreement.

1. You can simply end the agreement once all monthly payments have been made and return the car to the lender.

2. At the start of your agreement, an ‘Option to Purchase’ fee may be arranged, giving you the option to buy the car once the payments have ended, along with paying the GMFV.

3. You can part-exchange or trade your car in for a new model and start a new agreement.

Please note: Charges may be incurred if the vehicle is damaged or if you have gone over the agreed mileage limit.

Who is PCP suitable for?

If you’re a private buyer and looking for multiple options at the end of your agreement, then a PCP agreement could be the one for you.

For more information and to find out if a PCP agreement is the right choice for you, enquire online, give us a call, or pop down to your local Bristol Street Motors dealership today, where one of our friendly team members will help you get started.

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Benefits of PCP

- You have various options at the end of the agreement
- The deposit contribution helps to lower your monthly payments
- You can cancel your PCP agreement early

Hire Purchase

What is HP?

Hire Purchase is another popular finance option for many motorists.

It’s a super easy option to follow. Drivers pay a deposit followed by monthly payments, with interest included, and at the end of the agreement, they have the option to own the car if they pay an ‘Option Fee’.

How does HP work?

The initial deposit is usually at least 10% of what the car is priced at. This can either be paid in cash or as a part-exchange of an older vehicle, or both. Once this is paid, you will begin paying the monthly payments for a fixed period of time and at the end of the agreement, you can pay the ‘Option Fee’, which will give you full ownership of the vehicle.

Who is HP suitable for?  

Hire Purchase is a great option for both private and business customers, especially if you want to own the vehicle at the end of the agreement.

Benefits of HP

- You can become the owner of the vehicle at the end of the agreement
- A great option for businesses
- You can cancel your HP agreement early

To learn more about car finance, contact your local dealer to discuss your options and we will help you get started.

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