PCP or Hire Purchase

[zubi23]

Hi,

I need some help with the car buying options.

I am planning to buy a brand new car but after visiting the car showrooms we have been bombarded with the options for pcp finance and I feel the car dealer is not very keen on me going for hire purchase.

I am planning to keep the car for atleast 4 to 5 years.

I can put the deposit required for the best option.

I cannot weigh the pros and cons of PCP and HP.

Help please

Thank you

Having done both, I would advise HP every single time. Reason is that you know what you're paying and it will be yours at the end of the period. With PCP you have to have a plan for the balloon payment - only works with favourable loan rates or you've got the savings. If you're planning to keep the car for 5 years then I'd just go for HP. Esp if no plans to change your lifestyle.

@Lemmeparticipate thanks for your reply.

I have just noticed that the interest rate for HP is quite higher in comparison to PCP, is there any key element here which I am missing.

Mostly, I will be changing the car after 4 to 5 years.

Does that change anything regarding the option that I should go with?

I do PCP, 0% interest over two years, but large balloon payment. I will probably swap again, however I have worked out how much I need to save over the two years to meet the balloon payment taking into account current savings , divided by 24 and will save that amount each month, in addition to the monthly payment so I can pay it off if I want to

It really depends on how you plan to manage the balloon payment. If you want to hand the car back after 4/5 years then you might as well go HP. If the PCP rate is significantly lower than HP then it depends on whether you plan to save to pay the balloon payment outright or if you will finance that portion. If you're going to finance it in lets say 2 years to keep it for another 2/3 then you need to assume that loan rates will at a minimum what they are now and possibly plan for worse. So I'd do the maths for both whole terms. Unless of course you have the balloon payment in savings and are prepared to use that to pay off the car at the end and then keep it.

Have you checked to see whether you could get a decent loan from a bank to cover the purchase yourself?

I'd get a spreadsheet and model both over the course of the next couple of years with a mind on my own personal financial circumstances.

For what it's worth - my last PCP car I actually made 2K overall exchanging it for my new car, but that's because the used car market was at a premium and buying this particular model new was cheaper than buying used.

What is motivating your car purchase?