Which Car Finance Product is Best for You?

Sometimes it can be daunting when deciding which finance product to choose for your new or used car. We have put together this article to help explain the main finance product types as well as the advantages and drawbacks of each option.

There are a number of finance products to choose from, depending on how much you would like to pay each month and other factors, such as whether you would like to keep your car at the end of your agreement. Below, we will discuss the differences between PCP, HP, BCH, and PCH Finance.

PCP Finance

PCP Finance, or Personal Contract Purchase, is a type of car finance product that allows you to pay a deposit followed by a series of monthly payments. At the end of the agreement, you have the option to either pay a final balloon payment to own the car, return the car, or trade it in for a new vehicle. This option often provides lower monthly payments compared to traditional loans, making it an attractive choice for many buyers.

Advantages of PCP Finance

1. Lower Monthly Payments: PCP typically offers lower monthly payments compared to traditional car loans, making it more affordable for many buyers.
2. Flexibility at the End of the Term: At the end of the agreement, you have the option to buy the car, return it, or trade it in for a new vehicle, providing flexibility based on your circumstances.
3. Access to Newer Cars: PCP allows you to drive a new car every few years without the long-term commitment of ownership.
4. Lower Upfront Costs: The initial deposit is often lower than that required for traditional financing options.

Disadvantages of PCP Finance

1. Mileage Restrictions: PCP agreements often come with mileage limits, and exceeding these can result in additional charges.
2. Final Balloon Payment: If you choose to buy the car at the end of the term, the final balloon payment can be substantial.
3. No Ownership Until Final Payment: You do not own the car until you make the final payment, which may not suit everyone’s preferences.

HP Finance

HP Finance, or Hire Purchase, is a type of car finance product that allows you to pay for a vehicle in instalments over a set period. With HP, you typically pay a deposit followed by fixed monthly payments. At the end of the agreement, once all payments have been made, you own the car outright. This option is beneficial for those who prefer to own their vehicle at the end of the financing term and do not want to worry about mileage restrictions or balloon payments.

Advantages of HP Finance

1. Ownership at the End of Term: Once all payments are made, you own the car outright, providing a sense of security and asset ownership.
2. No Mileage Restrictions: Unlike PCP agreements, HP finance does not impose mileage limits, allowing you to drive as much as you need without incurring extra charges.
3. Fixed Monthly Payments: HP typically involves fixed monthly payments, making it easier to budget and plan your finances.
4. No Final Balloon Payment: At the end of the term, there is no large final payment required, which can make it more manageable for buyers.

Disadvantages of HP Finance

1. Higher Monthly Payments: Monthly payments for HP finance are usually higher than those for PCP, which may not be affordable for everyone.
2. Initial Deposit Requirement: HP often requires a larger initial deposit compared to other financing options, which can be a barrier for some buyers.
3. Longer Commitment: The financing term can be longer, which means you are committed to paying for the vehicle over an extended period.

PCH Finance

PCH Finance, or Personal Contract Hire, is a type of car finance product that allows you to lease a vehicle for a fixed period, typically 2 to 4 years. With PCH, you pay a monthly fee to use the car without the option to buy it at the end of the term. This option is ideal for those who prefer to drive a new car every few years without the responsibilities of ownership, such as maintenance and depreciation costs.

Advantages of PCH Finance

1. Lower Monthly Payments: PCH typically offers lower monthly payments compared to purchasing a vehicle outright, making it more affordable for many drivers.
2. No Depreciation Worries: Since you are leasing the vehicle, you do not have to worry about the car's depreciation in value over time.
3. Maintenance Coverage: Many PCH agreements include maintenance packages, which can save you money on repairs and servicing.
4. Access to Newer Models: PCH allows you to drive a new car every few years, keeping you up-to-date with the latest models and technology.

Disadvantages of PCH Finance

1. No Ownership: At the end of the lease term, you do not own the vehicle, which may not suit those who prefer asset ownership.
2. Mileage Restrictions: PCH agreements often come with mileage limits, and exceeding these can result in additional charges.

BCH Finance

BCH Finance, or Business Contract Hire, is similar to PCH Finance but is specifically designed for businesses. It allows companies to lease vehicles for a fixed period, typically 2 to 4 years, without the option to purchase them at the end of the term. This option is beneficial for businesses looking to manage their vehicle fleet without the responsibilities of ownership, such as maintenance and depreciation costs.

Advantages of BCH Finance

1. Cost Management: BCH allows businesses to manage their cash flow effectively by spreading the cost of vehicle use over time without the need for a large upfront payment.
2. Tax Benefits: Businesses may be able to claim tax deductions on lease payments, which can reduce overall tax liability.
3. No Depreciation Concerns: Since the vehicles are leased, businesses do not have to worry about the depreciation of the asset over time.
4. Maintenance Packages: Many BCH agreements include maintenance and servicing, reducing unexpected costs and ensuring vehicles are kept in good condition.
5. Flexibility: Businesses can easily update their fleet with newer models every few years, ensuring they have access to the latest technology and safety features.

Disadvantages of BCH Finance

1. No Ownership: At the end of the lease term, the business does not own the vehicles, which may not align with long-term asset strategies.
2. Mileage Restrictions: BCH agreements often come with mileage limits, and exceeding these can lead to additional charges, which can be a concern for businesses with high usage.

Summary

We hope that you found this article useful. If you have any questions about new car finance or used car finance, please reach out to your nearest Cars2 dealer, by navigating to our contact us page.