The 3 Common Loan Options

Hire Purchase

Hire Purchase (HP) is a type of finance agreement where you can borrow a set amount of money over an agreed period at a fixed interest rate. The amount borrowed and the total interest is divided across the entire agreement, meaning you pay the same amount each month. You can also pay off the total early.

Key Features:
• Fixed monthly payments.
• Fixed interest rate means interest doesn’t fluctuate.
• Interest accrued over the finance period divided between all payments.
• Option to pay off the agreement early.
• No annual mileage limits.
• Option to purchase fee at the end of the agreement.

Lease Purchase

Lease Purchase (LP) is a type of car finance agreement where you can defer some of the total cost to the end of the agreement, called a balloon payment. Unlike with a Personal Contract Purchase agreement, you have to pay the balloon payment at the end of a Lease Purchase finance package.

Key Features:
• Available for all credit ratings.
• Monthly payments are fixed.
• Can defer up to 31% of the payment to end of the finance agreement.
• Balloon payment must be paid at the end.
• Balloon payment based on residual value.
• No VAT on payments.
• Own the car at the end of agreement.

PCP

Personal Contract Purchase (PCP) is a popular car finance option that allows you to pay monthly instalments that cover the car’s depreciation during the term of the loan. At the end of the loan agreement, you then have three options: return the car, pay a balloon payment to keep the car, or use the car as a part exchange (deposit) on finance for a new car.

Key Features:
• Suitable for those with a Good credit rating.
• Ideal for those with a large deposit.
• Lower monthly payments – you only pay the difference between the purchase price and Guaranteed Future Value.
• Depreciation is covered in the monthly payments.
• Monthly cost is driven by annual mileage.
• Three options at the end of a PCP agreement: return the car to the dealership; pay the balloon payment to own the car (set at the start of the finance agreement); part exchange the car on a new finance agreement.