Personal Contract Purchase vs. Hire Purchase

You may have read our recent article which detailed the alternative car finance plans to the Personal Contract Purchase/Personal Contract Plan (PCP). One of these is the Hire Purchase (HP) option, which is proving to be more and more popular amongst drivers. As such, you may be wondering which of these two would be the best for you, so we are comparing and contrasting the two in today’s blog.

In the case of the Personal Contract Purchase, the goal is to buy and own the car. With a PCP, you are entering a plan which will pay the overall cost that it will take for you to own the vehicle, which could then potentially be yours for a long time. In the case of a Hire Purchase, though, you are hiring the car for the duration of the payment plan, and only once it has expired will the car belong to you, hence the name “Hire Purchase”, which may be beneficial should you realise midway through that you do not want to buy that particular vehicle and wish to look elsewhere at the end of the HP agreement. Of course, this option is available with a PCP too, but in the case of the Hire Purchase, the car is never officially yours.

This means that there is a price difference between the two. In the case of the PCP, you are paying a larger amount on a monthly basis because you are in the process of buying the car. With the HP option, meanwhile, you are paying less money per month because, technically, you’re only hiring the vehicle as opposed to buying it. In the case of deposit payments, again the PCP will cost more, with a slightly lower deposit amount for the HP. As for penalty costs in the case of late payments or any other financial irregularities, again these will be larger for the PCP.

However, you should bear in mind that the PCP will result in greater security with regards to the terms and conditions of your payment plan. The car is essentially yours from day one, with you paying monthly until it’s all paid off and you own it 100%, but it is officially your car from the beginning. With a Hire Purchase, because you’re only hiring the car according to the language used in the agreement, there is reduced security because it doesn’t officially belong to you, meaning that if there were any problems with your circumstances or those of the dealer, it would have a bigger negative impact with regards to the vehicle in question, since according to the nature of the finance plan, it isn’t yours to determine the future of.

These are the main differences between a Personal Contract Purchase and a Hire Purchase, so hopefully this will help you to decide which agreement would be best for you. You can read more by visiting our news journal page.

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