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Rakhi Vasavada
Rakhi Vasavada, Financial Advisor
Category: Finance
Satisfied Customers: 4556
Experience:  Attorney and Financial Expert. Have specialization in Financial Laws.Practice experience of over 13 years
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We are considering finance new car. We applied ,

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We are considering finance for a new car. We applied for PCP, but have received paperwork for HP with a balloon payment.
We definitely want to hand the car back at the end of the agreement (3 years). We are not using a lease because we found a PCP which is cheaper per month.
Is there any difference between PCP or HP with a balloon payment?
I understand with HP if we hand the car back after 3 years we will get a note on our credit rating which can reduce our chance of getting car finance in the future... But with PCP, we can just hand the car back as a normal part of the agreement. Is that right?
Dear Friend, Hello and welcome. Thank you for providing an opportunity to assist you. Let us first discuss PCP --Personal Contract Purchase (PCP) is similar to a Hire Purchase agreement as you will usually pay an initial deposit, followed by monthly installments. What's different with PCP, is that your monthly instalments are only paying off the depreciation of the car, rather than the entire value of the car. This means -- the money you're actually borrowing and repaying is the difference between what the car is worth now, and what it will be worth at the end of your contract (the depreciation). You'll pay this difference off in monthly installments. Coming to your question in specific, people go for HP ONLY IF they intend to own the car. You cannot walk away or sell the car before settling the finance. You are right to say it can leave a note on your credit. Further more, you CANNOT hand the car back. Either you own it OR sell it off. You cannot hand it back -- officially. Whereas, PCP is meant for persons --- just like you -- who definitely intend to hand the car back at the end of the agreement PCP is, therefore cheaper as well as you are just paying the depreciation and not the amount of the car back. I would suggest you to return to your dealer and SPECIFICALLY ASK for PCP paperwork and not HP. I am sure this would help. I wish you good luck. You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question. Warm Regards
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