Changing Your Car Finance From PCP to HP

If you're in a car finance deal, you may be wondering if you can switch from a PCP to an HP.

If you're in a car finance deal, you may have wondered whether you are getting the most for your money. You would have likely been offered several different options when you took the finance deal out.

Car finance is great for those that want to buy a car but don't have the money saved to be able to afford it all in one go. However, It can be difficult to know whether or not you're in a good finance deal.

The two main car finance options are Personal Contract Purchase (PCP) and Hire Purchase (HP). Both have their pros and cons, and the type you opt for will depend on what you want out of your deal.

Do you have a car on finance and would like to reduce your monthly repayments? Sign up with Car Credible today; we could help you save money on your deal.

Check your deal now

If you know that you are the type of person that will never want to own a car outright and switch to a newer or different model every few years, then PCP is the one for you as it offers a lot more flexibility.

HP could be your best bet if you know you want to own the car at the end of your contract and not pay any more money for car finance. Either way, buying a car on finance ensures you spread a large cost across many months and years.

How can Car Credible help me?

You may be a couple of years into your car finance deal and start wondering about your next options. Can you change into a newer car? Can you reduce your monthly payments? What are my options?

At Car Credible, we specialise in simplifying the car finance process, making it easier to understand your current deal position and potential options now and in the future.

We make it clear and easy to know when you could get into a better car finance deal or switch to a newer car. We notify you every month to let you know about your new equity position, early settlement figure and car value.

This can help you understand your car finance deal much more clearly, and make an informed decision about your car finance future based on your personal needs and budget from the comfort of your home 

Can I change my deal?

If you're midway through your deal and are wondering whether you're in the wrong type of deal, you may think whether it's possible to switch from a PCP to an HP or from an HP to a PCP.

The simple answer is yes, it is possible to switch from one type of deal to another, though it is dependent on your agreement terms and how much finance you've already paid off.

It will also depend on whether your vehicle is in good condition. General wear and tear are bound to happen, especially if it's several years old. But if it has any significant or larger areas of damage, it could affect your ability to change your deal.


What is Voluntary termination?

Voluntary termination in car finance is the process of ending your car finance deal earlier than agreed. To do this, you need to have made at least 50% of your repayments and your car be in good condition.

If you are in a position to do this, you can simply hand the car back to the lender and walk away without paying anything more. You do have a legal right to enforce this under the Consumer Credit Rights Act 1974. 

Before you pursue this option, though, you should read your contract carefully to ensure there are no loopholes that could mean you have to pay money to unlock it.

There are two main reasons why one may want to file for voluntary termination, and these are:

  • You can't afford to keep up with your repayments
  • You simply want a new car

Is PCP or HP better?

Whether PCP or HP is better is a subjective question that will depend on an individual's needs and budget. Both agreement types have their advantages and disadvantages.

With an HP, once you have made all of the agreed monthly payments, the car will belong to you, and you won't have to make any further payments. Because of this, HP deals often mean you will pay more monthly and be expected to put a larger deposit down than a PCP.

With a PCP, while the monthly repayments tend to be lower, that's because, at the end of the agreement, you don't own the car outright automatically. You will have the option if you wish but will be required to pay a balloon payment.

A balloon payment is an optional lump sum payment at the end of a PCP that is calculated and agreed upon when you first sign the contract. It gets calculated based on the predicted depreciation of the car; essentially, how much the dealer thinks your vehicle will be worth at the end of your term.

Check your deal now

When the balloon payment is due, you have four options:

  1. Pay the balloon and own the car outright
  2. Hand the vehicle back to the lender and walk away without paying anything more
  3. Part-exchange your car, using any equity in your car as a deposit on your next vehicle
  4. Refinance your balloon so you keep the car and make smaller monthly payments

Before entering a finance agreement, you must decide whether or not you want to keep the car at the end or make a large lump sum payment to own the vehicle outright. 

Both PCP and HP are good options, but one may be better for you personally, depending on your circumstance. Research both car finance types before committing to one or the other.


What is part-exchanging?

Part-exchanging your car is the process of using any equity in your existing car as part of the payment for a new car. Your car should be worth more than the amount of finance you have left to pay to be worthwhile for you, otherwise, you may need to put your own savings in to pay the difference.

What's the main benefit of PCP?

The main benefit of PCP car finance is that you can generally afford a better, more expensive car than you would be able to ordinarily. This is because you don't own the car outright at the end of the deal unless you pay the optional balloon payment, so your monthly repayments don't take into account this lump sum.