PCP vs HP on a used car (sorry!)

[brakes]

Can anyone explain the pros/cons of buying a used car under a PCP agreement, rather than a standard hire purchase (HP)?

My current car is just over 2.5 years into a 5 year HP deal - at this stage I can do one of a few things:

• Give it back with no issues and owe nothing (under the 'rule of halves') or give it to WBAC
• There is some equity in it (my finance settlement figure is less than the value of the car - even at trade) so I could trade in easily for something else
• Or of course I could keep paying and keep it for another 2.5 years until I own it outright (but I'm getting itchy feet and fancy a change)

This seems to be pretty flexible - but everything I have read seems to suggest PCP is more flexible. As I see it, if you get a car on PCP (over, say, 2.5 yrs to keep it comparable), then at the end of the 2.5yr agreement you have the same basic options as I've put above. You could either:

• Give the car back owing nothing
• If there is some equity in the car (there ought to be), trade into another car
• Extend the loan/get a bank loan to pay off the rest over the next 2.5 years at a similar monthly cost

Seems it's basically the same options, except that a 2.5 yr PCP deal would have a more expensive monthly cost than a 5 year HP, and there's the mileage restriction thing? (a 3 yr PCP is broadly similar in monthly cost to a 5 yr HP). What's the advantage to PCP?

P.S. I know it's a boring topic, but search didn't reveal any answers so I'm not gonna apologise

[Truckosaurus]

Usually PCP allows a lower monthly payment but you are not seeing that as you're comparing a 5yr HP quote with a 2yr PCP.

[R26Andy]

..and dont forget that your unlikely to be able to simply walk away from the HP option after two years because you'll be in negative equity. HP is only better if you actually intend to stick out the 5 years IMO. Ive never managed to keep a car for more then 3 years.

[martin mrt]

PCP is a good idea if you put in enough of a deposit so there is no negative equity, we did this with the OHs TT-S as we are known to chop and change cars regularly, im looking to get an E90 M3 soon and i think the PCP idea is how i will fund it.

If you like the car and want to keep it at the end of the deal, its a case of simply refinancing the balloon payment until its paid.

[rfoster]

HP is the better option if it gives you the monthly payments that you are comfortable with. The current terms on a regulated agreement are very flexible and in the consumer's favour - you can pay off additional lump sums during the agreement and lower your monthly payments or shorten the term, and you can settle early at any time and benefit from a regulated settlement figure.

Finance companies favour PCP agreements for a couple of reasons - they can usually charge a (modest) premium on the interest rate over an equivalent HP agreement; and they also have a mileage stipulation built into the agreement. This gives them some protection if you do decide to terminate after paying 50% of the total payable under the agreement; if you have exceeded your pro-rata mileage allowance they are within their rights to charge an excess mileage figure (this is clearly shown on the finance documents and is not a hidden charge.)

Nevertheless, PCP still remains a very popular option, particular people who don't want the hassle of resale of a vehicle after the agreement has completed.

[brakes]

I'm trying to compare like-for-like. Say, for example, a 2 year PCP vs a 4 year HP.

In both scenarios, at 2 years into the deal, I could give the car back / continue / trade? So they're essentially the same product just named differently with slight differences in how things are calculated?

What am I not getting here?

[rfoster]

brakes said:

So they're essentially the same product just named differently with slight differences in how things are calculated?

Yes.

[valiant]

brakes said:

I'm trying to compare like-for-like. Say, for example, a 2 year PCP vs a 4 year HP.

In both scenarios, at 2 years into the deal, I could give the car back / continue / trade? So they're essentially the same product just named differently with slight differences in how things are calculated?

What am I not getting here?

PCPs are good if you chop and change every few years and because people 'forget' about the GMFV it can get you into a newer car for lower monthly payments. Also the final value is guaranteed so if the market was to completely collapse the dealer would take the hit not you if it was a HP arrangement.

Basically you got it right, a 3 year PCP is about the same as a 5 year HP although there might be some dealer incentives on offer if you take the PCP which may sweeten the deal.