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How to Decide What Kind of Car Finance is Best for You

Buying a car outright often isn’t an option for most people looking for their next vehicle, which is why car finance is quickly becoming the favoured choice.

However, with several choices on the market, it can be difficult to sift through the jargon and confusing finance terms. This is exactly why we have created a short guide on the three most popular car finance options.

Hire purchase - HP

Perhaps the most common form of car finance and one that a number of vehicle owners opt for is hire purchase.

In short, the amount of money that you need to borrow is split across a set time frame, often this is across 3-5 years or in some cases the timeframe is broken down into 26-60 months. Depending on your credit rating in some circumstances a deposit isn’t required.

To work out the monthly repayments, the total loan and the interest are added together and this is divided by the number of months and years payments need to be made. The key factor about hire purchase is that once the final payment has been made, you own the car.

Personal Contract Purchase - PCP

Similar to a Hire Purchase agreement, a Personal Contract Purchase is where the car can be fully owned at the end. However, the full balance is not always paid in monthly instalments, instead there is the option to defer the balance until the end of the agreement (which can range from 24-60 months), sometimes this is also referred to as a balloon payment or a guaranteed future value.

At the end of the term there are three options:

  • Pay off the remaining balance at the end of the term and own the vehicle

  • Give the vehicle back to the finance company

  • Sell or part-exchange the vehicle, make the final payment to the finance company and keep any remaining money as a deposit for your next car

Personal Contract Hire – PCH

Unlike the previous two options, you do not own the car at the end of the agreement. A PCH is like hiring a rental car - instalments are made but at the end of the term the car must be returned.

Rentals must be paid in advance, similarly to a deposit, the more rentals that are paid the lower the monthly instalments.

As the car is never yours when it is returned at the end of the agreement the company will check the vehicle for any damage. If there are any problems with the car, other than general wear and tear, extra charges will be added to the final payment.

If you wish to change your car during the PCH a termination fee will need to be paid, which will result in you having to pay for the car even though it won’t be yours at the end of the term.

Making the choice between HP, PCP, PCH

Each finance option has its own pros and cons and each person will have their own requirements which are best suited to one of the above options.

We hope that this article has moved you a step closer to making a decision on car finance, however, if you are still unsure about the best vehicle finance option for you, our team would be more than happy to help.

  • To speak to one of our experts, call our team on 01592 655550 or enquire now. 

  • Disclosure:
    We work with a number of carefully selected credit providers who may be able to offer you finance for your purchase.

    Brenwood Motor Company is authorised and regulated by the Financial Conduct Authority under FRN685851 as a credit broker not a lender. We work with a carefully selected number of credit providers who may be able to offer you finance for your purchase. Lenders may pay us commission for introducing you to them which may vary from lender to lender. Any such amounts will not affect the amounts you pay the lender under your finance agreement, all of which are set by the lender.

    We are committed to better supporting and taking into account the needs of customers who make us aware that they are vulnerable (as per the Financial Conduct Authority’s definition).

    It is our intention to provide the highest possible customer service at all times, however if you have any reason to make a complaint you should contact your local dealership to discuss the matter and hopefully resolve it accordingly, being Greig Coxall. If we are unable to resolve your complaint satisfactorily you may be entitled to refer the matter to the Financial Ombudsman Service (FOS). Further information is available by calling the FOS on 0800 023 4567 or at; https://www.financial-ombudsman.org.uk

    Reg Office:
    Brenwood Motor Company: 2 Waverley Road, Mitchelston Ind Estate, Kirkcaldy, KY1 3NH Company registration no - SC069239 VAT no - GB 345278834 ICO number - Z4786056