Finance Options Explained

Hire Purchase (HP) Finance

This involves you paying an initial deposit and then smaller monthly increments, generally for a duration of between 3 and 5 years.

The monthly payments are worked out by looking at the purchase price of the car, taking off your deposit (normally in the form of a trade-in of an older car), adding on the interest amount the the finance company will be charging and then dividing the entire amount by the number of months duration of the agreement. This gives you a fixed monthly payment.

At the end of the agreed period you will have paid for the car in full plus the specified interest. With this option you will own the car in full at the end of the agreement and there don't tend to be penalties for damaging the car or going over any mileage limits.

Personal Contract Plan (PCP) Finance

The concept behind PCP is similar to HP, you pay a deposit and fixed amount every month for the duration of the agreement, but the difference is that with PCP finance a large chunk of the purchase price of the car is taken off and reserved for the final payment of the agreement. This means that your monthly repayments will be smaller than with HP and when it comes to the end of the term you'll have some options.

1. you can pay off the remainder of the purchase price and take ownership of the vehicle.

2. You can hand the keys back to the dealer.

Bear in mind though that you will have to agree to a Guaranteed Minimum Future Value (GMFV) for the vehicle and if by the end of the term your car no longer meets this minimum threshold of value you can be penalised. Essentially this comes down to an agreed upon annual mileage limit and the car being in good condition when you hand it back.