Buying an Electric Car: PCP, HP or Lease?

A PCP is a Personal Contract Purchase. PCP’s are one of the most popular financing agreements your electric car dealership will throw at you. 

The easiest way to describe a PCP is to give an example: 

You start off by dropping an initial deposit on your new EV. Let’s say your deposit is £5K and the EV you are buying is worth £30K brand new. Your dealership will then ask you how long you want the car for and how many miles you would like to drive the car per year. Let’s say you choose to have the EV over 3 years (36 months) and you want to do 10K miles per year. The EV dealership will now make an estimate of how much the car will be worth in 3 years time with 30K miles on the clock. 

Let’s say your EV dealership estimates that your brand new £30K EV will be worth £10k in 3 years time with 30K miles on the clock. This means your brand new £30K EV is expected to depreciate in value by £20K over the 3 years and be worth £10K. This £10K will be your balloon payment to pay at the end of your PCP agreement. 

Your dealership will use this information to work out your monthly payments over the 3 years and your final balloon payment. In the above example, this means you will essentially be financing £20K. So 20K minus your initial 5K deposit is £15K. £15K divided over 3 years (36 months) is £416 per month. After the 3 years and 30K miles, your dealership will value your EV again to see how much it is actually worth. If the EV is worth more than the dealership initially estimated - let’s say, £15K - you will have built up some equity (£5K) in the car and you can choose whether you want to pay the balloon payment of £10K or use the equity to swap to a newer EV. If the EV is worth less than the dealership initially valued - let’s say, 7K - you may want to give the car back as it would not make sense to pay a £10K balloon payment for an EV which is now worth 7K. 

The advantages of the PCP are: 

• You have lower monthly payments than the typical HP agreement. -
• You are protected to some extent from car depreciation, as you can choose not to keep the car if it is not worth it at the end of the balloon payment.

The disadvantages of PCP are: 

• You have annual limits on your mileage
• You may be penalised for any accidental damage done to the EV, so make sure you’re careful with shiny new rims.
• There’s a substantial balloon payment waiting for you at the end of the agreement - what are you going to do?

HP is a hire purchase agreement. HP is often seen as being the easiest form of financing an EV. HP’s simply require the buyer to drop a deposit, and then simply make monthly payments towards ownership of the EV. There may be a relatively small fee of £100 - £200 for transfer of ownership once the car has been paid off. 

Although HP is a relatively simple form of financing a car, it is also one of the most expensive forms as there is no balloon payment to make towards the end of the term. Using the above example, if an EV is worth £30K and you make a £5K deposit, you will be financing the £25K. Let’s say you chose to have the HP agreement over 3 years (36 months). You would be paying around £694 a month until you finally own the EV. 

The advantages of the HP agreement are: 

• You own the car outright after the agreement.
• You do not have to worry about accidental damage, so go wild with kerbin’ those precious rims if you must.
• There is no balloon payment to worry about at the end.

The disadvantages of HP agreements are: 

• Those monthly payments can get really pricey.
• You’re not protected from depreciation in the value of the car.

A lease agreement - also known as a Personal Contract Hire (PCH), simply means you are renting the car. Think of it as an extended car hire that lasts for 2-4 years. You never own the car and there is no balloon payment to worry about because you simply hand the car back to the dealership once you’re done.  A Personal Leasing deal can be seen as one of the least complicated electric car financing options as there are not many variables involved.

Electric car leasing in the UK can often be cheaper than the average PCP and offer incentives such as free services, car insurance, MOT and general car maintenance under one monthly figure - of course, you will have to shop around and explore the electric car leasing deals available.

Just as you would on a PCP or a HP, you start off a PCH agreement paying an initial sum of money. This is not a deposit, it is more of a payment towards the total cost of the lease agreement. After the initial payment to start the PCH agreement, you will then pay a monthly payment for the agreed PCH duration. After this is done, you will have to arrange for the car to be picked up by the lease company. The leasing company will send someone to inspect the car and then pick it up from you. This person will then calculate if there are any damages that need to be paid for. 

The advantages of PCH are: 

• No balloon payment at the end of the agreement.
• Lots of incentives can be included under one monthly payment. - No commitment to the vehicle, you just give it back and that’s the last you will ever hear of it.
• No depreciation or anything like that to worry about.
• Smaller initial payment than the equivalent PCP or HP.
• Cheaper monthly payments compared to the equivalent PCP or HP.

The disadvantages of the PCH are: 

• You will never own the car.
• You will likely be charged for any damages done to the car after the agreement is done.
• No option to purchase the car afterwards.
• You will have limited mileage you have to adhere to, just like a PCP.

Here's a quick summary:

Now that you know how you are going to finance the car, let's take a look at some of the other key factors associated with owning an EV:

It really comes down to how much deposit you have and how much you are able to pay for monthly instalments. PCP’s seem to be the most flexible of all 3 financing options as it gives you the flexibility to hand the car back to the dealership or keep the car after the duration of the agreement. 

However, the balloon payment at the end of the PCP can be intimidating, to say the least, and not many people have the figure ready when the time comes to pay the settlement figure. 

Make sure to ask the dealership whether you are able to refinance the balloon payment as this gives even more flexibility towards paying off your EV when the time comes to it. 

PCH can be a good option if you don’t want to make a long term commitment to a car - especially if the lease company throws in lots of incentives like insurance, servicing and tyre repair so that you only have to worry about one monthly figure. 

But, you need to be prepared to pay for any damage done to the car throughout the PCH. HP is good if you know you definitely want to keep the car, but just don’t have all the cash ready at the moment. It is the least flexible option.

Golden Advice: Always READ the small print regardless of what agreement you choose so that your dealership cannot surprise you with any hidden fees and terms of the contract. Do not allow yourself to be bullied into any agreement you do not fully understand. Always take someone with you to help you come to a decision.

Joel is a YouTuber from South East London. He is the founder and main presenter of Tech Jamo Youtube Channel, a channel focused on all things Tech and Video Games.

Check out the TechJamo YouTube Channel!

He also is the owner of a Honda e. Check out TechJamo's Honda e review on YouTube!