Here at Bellinger Isuzu, we offer two types of car financing: Personal Contract Purchase and Hire Purchase, each of which comes with its own particular merits.
What is Personal Contract Purchase (PCP)?
PCP is the most popular car financing solution because it’s the most flexible. It can be used to achieve outright ownership or as a way of renting a car for the length of the agreed term.
This flexibility stems from PCP’s final ‘balloon’ instalment option which, once paid, ensures the vehicle is yours to keep. However, if you decide not to make the final payment, you can hand the vehicle back and walk away with no more money owed.
PCP also offers a third option: before the final instalment is due to be paid, you can choose instead to begin a new PCP plan. While doing so, you can upgrade to a newer Isuzu model.
The most popular financing option, Personal Contract Purchase typically delivers lower monthly payments than HP. This is because the largest proportion of the overall payment (often referred to as a balloon payment) is left towards the end of the agreement.
Monthly PCP payments take care of the vehicle’s depreciation, and the balloon payment is made if you wish to own the vehicle outright.
Before an agreement is drawn up, you will need to establish an annual mileage figure with one of our finance experts. (Please note, there may be excess mileage charges if you exceed the agreed limit.) With this information, we can determine the guaranteed minimum future value (GMFV) of the vehicle while establishing a deposit amount and monthly payments that work for you.
Once the agreement has ended, you have three choices. You can:
Usually, the finance company will require that you pay off the difference between the total value of the vehicle and what is left to pay. Provided this difference doesn’t amount to negative equity, you should be able to settle early. Before you do so, you will need to ask the finance company for a settlement figure. If the vehicle is worth more than the GMFV, you will then be able to put the positive equity towards a new vehicle, if you wish.
Things to consider
What is Hire Purchase (HP)?
HP is an older car financing solution than PCP, and it remains much in demand to this day. It’s a good option if you fully intend to own a vehicle outright, and especially if you have a history of defaults, or county court judgements related to debt.
Essentially, yes. You can do so by paying a settlement fee, which covers the cost of any remaining instalments (including interest). Once you’ve paid this fee, the vehicle is yours, albeit sooner than was originally agreed.
Please note, an HP agreement can be terminated early as long as you’ve paid back a minimum 50 percent of the total finance amount (including interest).
Things to consider
There are pros and cons to both financing solutions. Each requires a deposit, followed by fixed monthly payments – however, the latter tends to be more affordable with PCP. This is because a PCP final ‘balloon’ payment (also known as Guaranteed Future Value (GMFV) or optional final payment) can be quite high, particularly if you choose low monthly payments.
With PCP, once the deposit is factored in, the monthly instalments pay off the car’s expected depreciation, which is why the final GMFV payment tends to be much larger.
If you require greater flexibility, PCP is the arguably the best option. However, if you wish to make the exact same monthly payments (includingthe final payment), HP could well be the better solution, particularly if you’re working towards full ownership.