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Understanding PCP and HP Taxi Finance: What’s the difference between the two?

When purchasing a new or used taxi, many buyers face the decision between two popular finance options: Personal Contract Purchase (PCP) and Hire Purchase (HP). Understanding the key differences between these can help drivers make a more informed choice.

Personal Contract Purchase (PCP)

PCP is a flexible finance option that allows the buyer to defer a significant portion of the car's cost until the end of the agreement, known as a balloon payment or Guaranteed Minimum Future Value (GMFV). Here’s how it works:

  • Cabbie pays an initial deposit, followed by monthly payments for a fixed term, typically three to five years.

  • At the end of the term, the cabbie has three choices: pay the balloon payment to own the car, return the vehicle, or trade it in for a new one under a new PCP agreement.

  • The monthly payments are usually lower than HP because they cover only the depreciation of the car, not its entire value.

Hire Purchase (HP)

HP is a more straightforward approach to financing a car:

  • After paying an initial deposit, cabbie pays off the entire value of the car in monthly instalments.

  • These payments are spread over a fixed period, after which the driver owns the vehicle outright.

  • The monthly payments are higher than PCP as they cover the full cost of the vehicle.

Key Differences

  • Ownership: With HP, the cabbie is working towards ownership of the taxi. With PCP, the cabbie decides at the end of the agreement if they want to own the vehicle.

  • Monthly Payments: PCP usually offers lower monthly payments because the cabbie is not paying off the full value of the taxi within the term.

  • Flexibility: PCP provides more options at the end of the term, whereas HP is a simple route to owning the cab.

  • Mileage Restrictions: PCP often has mileage limits, with charges if the cabbie exceeds them. HP has no mileage restrictions.

Choosing the Right Option

The choice between PCP and HP depends on the individual financial situation and how they intend using the cab long-term. If they like changing cabs frequently and want lower monthly payments, PCP might be more suitable. If they prefer to own the taxi freehold and are comfortable with higher monthly outlays, then HP could be the better option.


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