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Hire Purchase - Brief Explanation

What is hire purchase?

In the context of buying a car, hire purchase (HP) is a way to pay for the vehicle without forking out its full value at the outset. As a customer, you’ll typically pay a deposit upfront, and then the remainder of the balance, plus any interest, is split over a set period of time.

Once you’ve made your final payment, you’ll then own the car. 

How does hire purchase work?

When buying a car, you can either sit down with a dealer to work out an HP deal, or apply online through a site such as Confused.com.

As mentioned, you’ll usually need to pay an initial deposit – this is typically around 10% of the full value of the car.

After this, you can drive the car while you pay off the remainder of its value plus interest via monthly instalments. 

HP contracts tend to be between one to five years.

Personal Contract Purchase - Brief Explanation

What is PCP?

Personal contract purchase, or PCP for short, is simply a form of finance that allows you to loan a car from a finance company.

How does it work?

PCP works in a similar way to a hire purchase (HP) agreement.

You’ll be asked to pay an initial deposit followed by monthly payments for a set period.

Most PCP deals are available for anywhere between 18 and 48 months, although 36 months is pretty typical. 

Usually the higher deposit you pay, the lower your monthly payments will be.