Car finance is becoming more complicated all the time. There are lots of terms out there to explain different ways to finance a car– it’s pretty confusing. For example;
- Personal loan. You don’t always have to pay a deposit but you will need a good credit rating. You own the car immediately.
- Hire purchase. You don’t own the car until the end of the agreement. You usually pay a deposit and then an agreed rental each month for a fixed time period.
- Personal Contract Purchase (PCP). Payments under this agreement are not based on the full value of the car so the monthly cost is usually lower than Hire Purchase. An estimate of the car’s value at the end of the agreement is made which is taken away from it’s current value leaving what you pay over the life of the agreement. At the end of the agreement, you can choose to buy the car, take out another agreement for another car or end the agreement.
- Personal Contract Hire (PCH). Nice and simple, it’s basically a long-term car rental.
HSBC has created a helpful and mercifully simple infographic to explain what these terms mean. You can download the graphic in pdf if you want to be able to carry it with you – Download the HSBC Car Financing pdf.