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Financing an electric car: HP v PCP v PCH

22nd Dec 2021
Financing an electric car: HP v PCP v PCH

The question of how to fund your new vehicle is a big one. There are lots of options, so you want to make sure that you’re making the best financial decision for you.

If you're undecided on whether to buy or to lease your new electric car, read our Buying vs. Leasing an Electric Car guide. It's full of useful information to help you make the right decision for you. 

Personal Contract Hire (PCH)

Personal contract hire (PCH) is a form of financing that involves paying a fixed monthly amount for the use of an EV.

At the end of the agreement, you hand the car back. It’s essentially a form of long-term car hire.

The monthly payments for PCH deals are usually higher than for PCPs, but the total cost of the agreement can often work out lower.

The amount of money you pay over the course of the agreement – which includes an upfront payment and monthly fees over an agreed period of time – is based on an estimate of how much the car’s value will fall between the start and end of the contract.

At the end of the agreement, you just hand the car back to the provider and decide on your next new EV.

Read more about leasing contracts in our Leasing Contracts Explained guide

Personal Contract Purchase (PCP)

Personal contract purchase (PCP) is a way of ultimately owning an electric car – but a PCP can also includes an option to hand the car back at the end of the agreement.

A PCP is based on the difference between the purchase price of the new car and what it's predicted to be worth at the end of the agreement, so you’re paying for the depreciation.

At the end of the term – usually two, three or four years – you have three options;

1. You can hand the car back, with the only costs being extra mileage or any damage

2. You can keep the car, making a final ‘balloon’ payment, based on the car’s guaranteed future value (GFV)

3. You can trade the car in against a brand new EV, using any GFV equity as the deposit for a new car. 

Hire Purchase (HP)

Hire Purchase (HP) is a flexible way of financing an EV for companies that want to keep the vehicle at the end of the arranged term.

Over the period of the HP agreement period, your company is the registered keeper, and you’ll be responsible for any maintenance, repairs and insurance. However, the finance company you have the HP agreement with is legal owner until you’ve made a final payment.

When negotiating a deal, you should be able to find a flexible agreement covering monthly payments, the optional deposit and any balloon payment, which will fit with your business’ budget and requirements.

EVs bought using HP also won’t have mileage restrictions and the term of the agreement can stretch to five years. And if you’re VAT registered and are planning to use your HP-financed EV only for business, you can reclaim the VAT and offset the repayment interest rates against company profits.

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