Personal Finance Leasing
If you’re interested in gaining a personal finance deal, here are some options you may want to consider.
Please note that this information is not intended to replace sound financial advice from accredited experts on the right option for you. This is a rough overview only.
PCP, PCH or HP ?
This guide will talk you through three popular finance plans available through Capital Fleet Solutions:
- Hire Purchase (HP)
- Personal Contract Hire (PCH)
- Personal Contract Purchase (PCP)
Deciding how to finance your vehicle
Financing a vehicle is an important decision which many of us are increasingly making. According to the Finance & Leasing Association, 8 out of 10 new vehicles were purchased on finance. But how much do you know about it?
Hire Purchase (HP)
If you choose to pay for your vehicle with a Hire Purchase agreement, you will normally pay an initial deposit and will pay off the entire value of the vehicle in monthly instalments. When all the payments are made, the Hire Purchase agreement ends and you own the vehicle.
Benefits
- You’ll be able to drive away a vehicle that you may not have managed to buy outright.
- Unlike a PCP or PCH contract, you won't need to estimate your mileage at the start of your Hire Purchase agreement, so you'll avoid excess mileage charges
- Once you’ve made your final monthly payment, including the option to purchase fee, you'll have full ownership of the vehicle.
Things to bear in mind
- Monthly payments may be higher than some other finance options, such as PCP, as you're paying off the full value of the vehicle.
- You won’t be able to sell the vehicle without settling the finance.
- You won’t own the vehicle until you have made all of your repayments.
- You’ll need to keep the car properly insured, maintained and in your possession until the full value is paid off.
Personal Contract Hire (PCH)
Personal Contract Hire (PCH) is a type of long-term rental that will suit you if you’re not looking to buy the vehicle at the end of your contract and won’t need to change the vehicle before the end of the contract.
You lease the vehicle for an agreed period of time by making fixed monthly payments. When the contract expires, you simply return your vehicle.
Benefits
- It’s hassle free, as you can drive away a new vehicle without worrying about how you'll re-sell it.
- Most leasing companies will offer an option with maintenance built in, eliminating unexpected repair bills.
- Your monthly payments on the vehicle will be much lower than if you were buying it.
- You will have access to new vehicles that you may not have been able to afford to buy.
Things to bear in mind
- There’s no option to buy the vehicle at the end.
- You will need to agree an annual mileage allowance at the beginning of your contract – there may be a mileage charge if you exceed this.
- Just like your mobile phone contract, you are tied in for the full duration of the agreement and there may be significant charges if you need to change or stop the contract.
Personal Contract Purchase (PCP)
Personal Contract Purchase (PCP) is similar to a Hire Purchase agreement as you will usually pay an initial deposit, followed by monthly instalments.
What makes PCP different is that your monthly instalments are paying off the depreciation of the vehicle, and not its entire value, over the course of the term. Then, when you get to the end of your agreement, there is a final ‘balloon payment’ that must be made if you want to keep the vehicle.
How does PCP actually work?
At the start of your PCP contract, a Guaranteed Future Value (GFV) of the vehicle is set. This is the vehicle's expected value when your contract ends.
For you, this means that the money you’re repaying is the difference between what the vehicle is worth now and what it will be worth at the end of your contract (the depreciation) plus interest, which is calculated on the full value of the vehicle. You'll pay this difference off in monthly instalments.
Remember: you’re still liable for the full amount of the vehicle if anything happens to the vehicle or if you settle early. This means lower monthly payments for you, but you will need to pay a final payment at the end (the Guaranteed Future Value) if you want to keep the vehicle.
Once your agreement is finished, you’ll have three options:
- Buy the vehicle by paying the final balloon payment (the Guaranteed Future Value).
- Hand the vehicle back - your finance company has already predicted the Guaranteed Future Value of the vehicle, so handing the vehicle back will settle the deal.
- Part exchange for a new vehicle.
Benefits
- Monthly payments on a vehicle financed by PCP are usually lower than if your vehicle is financed by a Hire Purchase agreement.
- If you decide not to buy the vehicle, you can simply walk away when you've made all the payments.
- Similar to PCH, you can drive away a new or used vehicle every few years (dependent on the chosen term) without worrying about selling it on.
- If your vehicle is worth more than the Guaranteed Future Value then you can use that equity towards a deposit on a new vehicle.
Things to bear in mind
- If you want to buy the vehicle you will need to pay your final balloon payment (the Guaranteed Future Value).
- Similar to PCH, you will need to agree on a mileage allowance at the beginning of your contract and there may be excess mileage charges if you exceed this.
- You won’t be able to sell the vehicle without settling the finance.
- You won’t own the vehicle until you have made all of your repayments.
- You’ll need to keep the vehicle properly insured, maintained and in your possession until the full value is paid off.
Can I settle my PCP deal early?
You can normally settle your deal early, however the finance company will require you to pay off the difference between what your vehicle is worth now, and what you still owe (negative equity).
On the other hand, you may find that at the end of your term your vehicle is worth more than the Guaranteed Future Value, which means you’ll have some positive equity to contribute towards your next vehicle.
Ultimately, the choice is yours and we always recommend you seek professional advice before making any final decisions. If you need further information or require comparative quotes on the finance options listed, don’t hesitate to call us on 01329 756 373 or Enquire Here