Hire Purchase

Hire Purchase

Under a HP (hire purchase) agreement you usually (but not always) pay a deposit at the outset at the start of the agreement. You then pay the rest of the value of the car in instalments, over a period of between 3 and 5 years. You hire the vehicle until you make your final payment, after which you own it.

HP agreements are usually for a fixed monthly cost, meaning that the APR (Annual Percentage Rate) is set before the contract begins. The finance agreement is secured against the vehicle and this provides the lender with some flexibility regarding the terms they can offer.

The amount you wish to borrow is based on the value of the vehicle you want, minus any deposit you are able to provide. A deposit can be in the form of cash or a part exchange vehicle.

At the end of the agreement

Once all of the monthly payments have been made, you then have the choice whether or not to pay the final ‘option to purchase fee’. Paying this fee means that you become owner of the vehicle.

You also have options to settle the finance agreement part way through the term of the agreement, your finance provider can give you specific details at any time.

Benefits of hire purchase

-A simple way to finance a vehicle purchase.
-Flexible deposit options at the start.
-A choice of agreement length based on your own financial circumstances.
-Fixed monthly repayments.

Things to consider

-The finance company own the vehicle until you pay the ‘option to purchase’ fee at the end of the agreement - this means that you can’t modify or sell the vehicle during the lifetime of the agreement.

Conditional Sale

Conditional Sale

A conditional sale agreement operates in the same way as a HP agreement, but you automatically own the vehicle at the end of the agreement, once the final payment is made.

Motor Loan

Motor Loan

A motor loan works in a similar manner to a personal loan, however the money required to be paid for the vehicle is usually paid straight to the motor dealer from the finance company.

The main difference from other motor finance products is that you own the vehicle at the start of the agreement. This means that you do not have flexibility throughout the length of the agreement with regards to returning the vehicle, however, because you own it from the outset, you can sell it if you choose to.

At the end of the agreement

You end your agreement by paying each monthly installment until the finance is paid off. You do have the option of settling this early, and you may benefit from a saving if you do so.

Benefits of a motor loan

-You own the vehicle straight away.
-Flexibility on the length of the agreement.
-Fixed monthly payments.

Things to consider

-You usually won’t have the option to hand the vehicle back during the lifetime of the agreement should you wish to do so.

Personal Contract Purchase

Personal Contract Purchase

Personal Contract Purchase, also known as PCP, is a popular way of financing a vehicle and is usually based upon a hire purchase (HP) agreement. The main difference is that the vehicle’s value at the end of the agreement is calculated at the start and is then deferred. This is referred to as the Guaranteed Minimum Future Value (GMFV) and is based various factors including the starting mileage, the users projected annual mileage and its age. The GMFV is fixed for the term of the agreement. Deferring the GMFV to the end of the agreement in this way means that your regular monthly payments are lower than those on a HP agreement over the same term.

At the end of the term, a PCP agreement allows the user to decide whether to pay the GMFV to own the car, or return the car to the lender with nothing further to pay provided the user has not exceeded the projected mileage.

Under a PCP agreement, monthly instalments are based on the amount borrowed minus the GMFV. This will result in lower monthly instalments than a standard HP agreement over the same term.

You have three options at the end of the agreement:

- You can either pay the GMFV and own the car outright.
- Trade the vehicle in by using any existing equity as a deposit for a new finance agreement (provided the market value is more than the GMFV).
-Hand the vehicle back (charges are applied if you have driven the vehicle for more miles than was agreed at the start of the agreement or the vehicle is not in an acceptable condition).

Benefits of Personal Contract Purchase

-Flexible deposit options at the start.
-Lower monthly payments than hire purchase.
-Fixed monthly payments throughout the term of the agreement.
-Choices at the end of your agreement.

Things to consider

-A PCP agreement could work out more expensive overall than a hire purchase agreement for an equivalent vehicle, this could be the case if you choose to enter into a second finance agreement to pay the deferred future value of the car at the end of the first agreement.
-If you decide to return the vehicle, make sure it is in good condition as you could be responsible if it is not.
-Make sure you estimate your annual mileage with care as there will be charges for additional miles above the amount agreed.


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