Leasing vs PCP and HP

It's highly likely that you'll finance a new car if you're thinking about buying one. Using financing methods including Personal Contract Purchase (PCP), Personal Contract Hire (PCH), and Hire Purchase (HP). More than 90% of all new cars are purchased on some form of finance package.

Currently, PCP is most often used. The fastest-growing sector is PCH, referred to as personal contact hire. HP used to be extremely popular, but its appeal is currently waning. We'll walk you through the further distinctions so you can determine which is best for you and why leasing a car is frequently less expensive than buying one.

Personal Contract Hire (PCH)

Personal Contract Hire (PCH), sometimes known as leasing, is as straightforward as it gets.

After choosing your lease period and annual miles, you make an initial rental payment (often 3, 6, or 9 instalments in advance) and then a regular monthly payment for the duration of the contract. If you've driven less than the agreed-upon mileage and the vehicle is in typical condition for its age and mileage when it is returned to the leasing firm at the end of the term, there are no additional fees. If you've travelled further, it's acceptable, but you will still be required to pay an excess mileage pence per mile fee. (Link to Glossary Pence Per Mile?) Is personal leasing a car cost efficient? Yes, leasing is more affordable and cost effective compared to a PCP. All you will have paid for, aside from the down payment and the monthly payments, are standard operating expenses like fuel, insurance, and maintenance. Even better, if you like, you may eliminate the relative uncertainty of routine maintenance by including it in your monthly lease payments. Vehicle Excise Duty (Road Tax) is also covered by your lease payments.

Personal Contract Purchase (PCP)

In contrast to leasing, PCP finance gives you more freedom at the end of the contract. You have three options: return your vehicle to the dealer, trade it in for a new vehicle (and apply any equity toward the down payment on a new vehicle) or purchase the vehicle outright with a balloon payment.

In addition, there are other things to take into account with a PCP arrangement that you wouldn't need to with a lease, such as interest rates with an APR (Annual Percentage Rate). You pay this sum annually to borrow money from the loan company to finance your car.

The monthly payments are effectively what cover this, even if leasing companies don't disclose it in the contract. The interest rate you pay on a PCP contract, which is often between 4 and 8 percent, is visible since it operates similarly to a loan. On used vehicles, though, this figure can reach 20%. Therefore, while choosing a PCP contract, you should check for low interest rates as well as the overall cost of borrowing once admin costs, monthly payments, and the deposit are considered.

Hire Purchase (HP)

HP, or hire purchase, is similar to PCP in that you can make lower, higher, or no down payments, which will have an impact on your monthly payments. When you are set up, you choose the contract length, which is normally two, three or four years. The primary distinction between HP and PCP is that upon completion of the contract, you will automatically own the vehicle. You cannot return the vehicle and leave.

Things to consider

Since you're paying off the entire value of the vehicle, your monthly payments may be more than they would be with some other financing alternatives, including PCP. Without paying off the debt, you won't be able to sell the vehicle. Until all your payments have been made, you won't own the vehicle. Until the full amount is paid off, you must keep the car in your possession, appropriately insured, and maintained.

Is it cheaper to lease a new car?

Depreciation plays a key role in leasing. Over time, a car loses that much money in value. If you're searching for a high-end car, leasing is frequently far less expensive than buying because models like the Audi Q5 or Mercedes-Benz EQA have lower monthly lease costs because they keep their value better.

Although the monthly cost on a lease may still be less than on a PCP or HP, you may find leasing allows you to purchase a more prominent logo such as a Landrover or Mercedes (Insert Links?) with more equipment and technology. More affordable vehicles can depreciate more.

It's crucial to conduct research yourself. If you're in the market for a new vehicle but aren't sure yet, do a quick leasing vs. buying exercise for yourself. Get a PCP quotation for the vehicle of your choice for a duration of 36 months, and then get a lease quote for the same vehicle, term, and mileage. The total amount you will really pay over the term should then be calculated.