Leasing vs PCP & HP Explained

In the age of easily affordable vehicle finance, there are three particular types of finance that are standard within the industry. Leasing or Personal Contract Hire as it's often called, PCP which stands for Personal Contract Purchase and HP which means Hire Purchase. 

Leasing/PCH (Personal Contract Hire)

Leasing or Personal Contract Hire is a form of long-term vehicle rental that is usually done for either two, three or four-year periods. For your leasing contract, you will select your expected annual mileage and contract length, as well as optional spec extras (cruise control, panoramic sunroof etc) and maintenance packages. You never own the vehicle and at the end of the contract, the vehicle goes back to the provider and you pay nothing more.

PCP (Personal Contract Purchase)

PCP or Personal Contract Purchase is where customers pay a deposit for a vehicle and are expected to make fixed monthly payments until the end of the contract. Similarly to leasing, you must select your annual mileage and contract length in the beginning. What makes PCP different to leasing is that at the end of the contract you have the option to buy the vehicle outright with what's called a balloon payment, give the vehicle back to the provider and use it as a deposit for another PCP deal or simply give it back and walk away without any further involvement. 

HP (Hire Purchase)

HP or Hire Purchase is similar to PCP as you put down a larger, smaller or no deposit which will, in turn, affect your monthly payments. The contract length is decided by yourself when being set up is typically two or three years. The main difference from PCP is that with HP you will automatically own the vehicle at the end of the contract. You can't give the vehicle back and walk away. 

Which one should I choose?

Depending on what you want the end outcome to be, each type of finance has its advantages and disadvantages. Please see the table below for a quick insight into the differences between each type.

Deposit Required

• Leasing requires an initial rental which is paid two weeks after your vehicle is delivered to you
• PCP often requires an upfront deposit, though can sometimes have no deposit offers
• HP often requires an upfront deposit, though can sometimes have no deposit offers

Fixed Monthly Payments

• Leasing has a fixed monthly payment based on your contract agreements (annual mileage, contract length etc)
• PCP has a fixed monthly payment based on your contract agreements (annual mileage, contract length etc)
• HP has a fixed monthly payment based on your contract agreements (annual mileage, contract length etc)

Annual Mileage Cap

• Leasing has an annual mileage cap and excess mileage fees
• PCP has an annual mileage cap and excess mileage fees
• HP has no annual mileage cap

Excess Wear & Tear Fines

• Leasing has excess wear and tear fines for damaged vehicles when they are handed back at the end of the contract
• PCP has excess wear and tear fines for damaged vehicles when they are handed back at the end of the contract
• HP has no excess wear and fear of fines

Risk of Depreciation

• Leasing has no risk of depreciation as you hand the vehicle back 
• PCP has no risk of depreciation should you choose to hand the vehicle back and a risk should you choose to keep it
• HP has a risk of depreciation as you are the owner of the vehicle at the end of the contract

Own the Vehicle on Contract Expiry

• With Leasing, you don't own the vehicle at any point in time and must hand it back at the end of the contract
• With PCP you can choose to buy the vehicle at the end with a balloon payment or hand the vehicle back
• With HP you own the vehicle at the end of the contract

Balloon Payment on Contract Expiry

• Leasing has no balloon payment at the end of the contract as you must hand it back to the provider
• PCP has a balloon payment at the end of the contract if you decide to purchase the vehicle
• HP has no balloon payment at the end of the contract as you pay fixed monthly fees until the final one

Early Contract Termination

• With Leasing, you can terminate the contract early but you have to pay a substantial penalty fee decided by the funder
• With PCP, you cannot terminate the contract early but you can get a final settlement price
• With HP, you cannot terminate the contract early but you can get a final settlement price

Secured Against an Asset

• With Leasing, your vehicle is secured against an asset meaning if you fail to make payments it will be taken from you
• With PCP, your vehicle is secured against an asset meaning if you fail to make payments it will be taken from you
• With HP, your vehicle is secured against an asset meaning if you fail to make payments it will be taken from you

Again, which one should I choose?

If you're still finding difficulty in deciding which finance option to pick, see below:

Do you want to rent a vehicle for two/three/four years and give it back at the end with no further involvement?

Choose Leasing

Do you want to rent a vehicle for two/three/four years and are fairly certain you want to buy it at the end or trade it in for another offer?

Choose PCP

Do you want to pay off a vehicle long-term and then own it at the end?

Choose HP