Understanding the ABC’s of Financing with Car Finance Northern Ireland!

18th June 2023

Hello, finance enthusiasts! Today, we are going to delve into three common types of financing that are often used for large purchases, such as cars, vans, motorbikes and caravans: Hire Purchase (HP) agreements, Personal Contract Purchase (PCP) agreements, and Personal Loans (PL). While they may seem similar at first glance, each of these methods has unique characteristics, advantages, and disadvantages. So, if you’re considering financing options, this is the perfect blog for you. Let’s get started!

First up, let’s talk about Hire Purchase Agreements. HP is one of the most popular forms of financing for buying a car, van, motorbike or caravan, although it can be used for other large purchases too. With an HP agreement, you have the option to pay a deposit upfront, only if you want to of course, this reduces the amount you borrow and you then make regular monthly payments to cover the rest of the value over a term that suits your budget.

The crucial thing to understand about HP agreements is that you don’t actually own the item, be it a car, van, motorbike or caravan, until you’ve made the final payment which usually includes a small option to purchase fee. Until then, it’s technically owned by the lender. This means if you fail to make payments, they have the right to repossess the item. Once it is paid off it’s 100% owned by you! It is also flexible, you can make overpayments at any time during the term or settle early if you want to upgrade or clear the finance.

Next on our list is the Personal Contract Purchase Agreement. This is another common way to finance a car, van, motorbike or caravan but it’s a little more complex than an HP agreement. With a PCP, you also can pay a deposit and make regular monthly payments, however, these payments only cover the value that the car is expected to lose during your contract term, not the full price of the car.At the end of the agreement, you have three options:

a) Pay a final balloon payment (also known as the Guaranteed Future Value) to buy the car outright.
b) Hand the car back to the dealer with no further payments, as long as it’s in good condition and within the agreed mileage with fair wear and tear
c) Use any equity left over (if the car is worth more than the final payment) towards a deposit on a new finance agreement.

It is also flexible, you can make overpayments or settle at any time during the contract period so if your circumstances change you are not locked in.

Finally, we have the Personal Loan. This is a more straightforward and flexible option than either HP or PCP agreements. With a personal loan, you borrow a certain amount of money from a bank or other lender, and you pay it back with interest over a set period. The loan isn’t secured against the item you’re buying, so you own it outright from day one.

Now, this might sound great, but remember that personal loans usually require a good credit rating, and the interest rates can be higher than other forms of financing. Plus, as the loan is unsecured, failing to make repayments could have serious implications for your credit score. You also don’t have the added protection you get with a HP or PCP on the vehicle you buy should something serious go wrong in the first 6 months.

In conclusion, the best financing option for you depends on your individual circumstances, including your budget, your credit score, and your long-term plans for the item you’re buying. A Hire Purchase Agreement might suit you if you want to own the car at the end of the term and don’t mind making higher monthly payments. A Personal Contract Purchase might appeal to you if you like to change your car every few years and want a lower monthly payment. A Personal Loan could be the best choice if you have a good credit score and want to own the car outright from the start or looking to finance something mainstream lenders will not consider.

We hope this has helped clear up the differences between these three types of financing. So if you are looking to your next car, van, motorbike or caravan purchase why not give Car Finance Northern Ireland a try, see what our customers say here.