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Are there different types of vehicle finance?

There are few different types of financial product available to cover the costs of your car or van. The most popular are leasing, otherwise known as Contract Hire (PCH/BCH), and Personal Contract Purchase (PCP). However, there is also Hire purchase (HP) which provides an alternative purchasing method.

Leasing or Contract Hire can be either for a business (BCH) or on a personal basis (PCH). The only difference between the two is that prices exclude VAT for a business application but they will include them for a personal one. A Contract Hire agreement is essentially the rental of a vehicle based on set terms over a set period of time. You will choose your car and your mileage, pay an initial payment based on an incremental value of your monthly payment and then will pay the set monthly fee over the set term. There are charges if you exceed your mileage limit or if the vehicle is returned in a condition beyond what is deemed fair as governed by the BVRLA’s fair wear and tear guide. Road tax is also included with Contract Hire at the prevailing rate.

A PCP is very similar to a Contract Hire agreement, except that it gives you the chance to own the vehicle at the end of the term. The format is the same in terms of choosing your deposit (although this time you can invest an amount chosen by you and are not restricted to a multiplication of your monthly payment), your mileage and your term. You will then pay a monthly fee until your contract ends, at which time you can choose to pay the balloon payment and own the car, or simply hand it back. Road tax is not included and you will incur interest on the full value of the car which is likely to see you pay more over the course of the agreement than you would with Contract Hire agreement. Nevertheless, if you would like the option of owning the vehicle, PCP is an option to consider.

Hire Purchase is a less common form of vehicle purchase. It is an agreement whereby a person hires the car for a period of time via paying an initial payment and monthly payments but owns the vehicle once the finance has been settled. Your monthly payments will be more as you are funding the complete value of the car rather than just its depreciation and interest is applied to the fees paid. However, mileage, condition and customisation are all flexible as you own the vehicle at the end of the contract.

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