You decide to have a car through a car financing scheme, but you are not really sure which one to pursue. ‘Should I go for a hire purchase (HP) or personal contract purchase (PCP),’ is a question constantly dallying with your mind. What is the right answer? Here are some pointers to aid you:
How Much Do You Love That Sedan?
Most of us want to have that one car, the one which endears itself to us the most; while others are trendier and are interested more in switching their car after every 3 years. If you are the one who likes to have a bit of everything from the dinner table rather than sticking to your juicy steak, then PCP option is the one for you.
With HP, you are anchored to one car until you decide to sell it off. With PCP you have the choice to drive a newer sedan even before the maturity of your agreement, that is, if you wish to.
How Much Are You Ready to Pay?
The next question that should help you decide between the two car financing schemes is, how much are you prepared to pay.
With HP you submit an initial deposit and the remaining cost of the car, is distributed over a period of years. You are required to cover up this distributed cost through monthly installments, which obviously include interest as well. At the end of your agreement, provided there are no default payments, you get the ownership of your car. Since you are paying the actual cost of the car, the monthly payments in HP are structured and higher than what you get with other car financing schemes. Obviously, you can extend the distribution period to lower it, but at the end of the term it will still end up costing you more if you factor the maintenance cost.
In the case of PCP, you are only paying the amount that is being depreciated each month. And once the agreement period is over you can have the ownership if you decide to pay off the balloon payment. Being concerned with depreciation, this usually means that your monthly payments in PCP are much lower than that of HP with lower interest rates as well.
Do You Want a Subsidized Scheme?
HP schemes are not subsidized unlike PCP. Since with PCP you have the luxury to change your car after a specified amount of time, it benefits the manufacturers and thus they tend to subsidize these deals. With HP, there is nothing like that.
Does Your Mileage Matters?
If mileage matters to you, then HP should be your choice amongst the two. With HP you do not have to calculate your estimated mileage over the period, so even if you end up travelling far more to the liking of your dealer, you do not have to pay extra charges. With PCP, you can only drive within the agreed mileage estimate and failure to abide by it means, you will have to do with a penalty.
Choosing which car financing scheme is better is more about answering which scheme suits your needs better. They both have their own unique set of advantages, and the preference ultimately lies with you.