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Should I Refinance my Car with a PCP or HP Car Finance agreement?

Both Hire Purchase and Personal Contract Purchase are available when you refinance a car. Your circumstances and vehicle age will likely dictate how you refinance your car.

Here is a scenario of how you might think through the best car refinance option.

Refinance with PCP

Refinance with PCP

If you refinance with another PCP deal, your monthly payments should decrease noticeably (assuming the same contract length, deposit amount, and mileage allowance remain).

  1. Suppose the cost of financing a £20,000 car for two years was £265 per month.
  2. The car loses 50% value in two years and is now worth £10,000.
  3. Refinancing the vehicle for four years might reduce that monthly payment to £150. (Assuming once again you pay a £2000 deposit).
  4. After another four years, you may be able to make an optional final payment of approximately £4,000 on the car. You can pay this to become the owner or refinance the car again.

Hire Purchase (HP) Refinancing

If you do not wish to pay a sizeable final amount, a four-year HP contract with a £2,000 deposit may be the right option. You will also pay less interest overall than refinancing the car with a PCP. After a four-year term, the vehicle is yours.

If you lack the funds to deposit another £2000, your monthly payments would be about £265, the same as your initial PCP contract – but you don’t refinance the car again.