Representative Example: You could borrow £10,699 over 60 months with an initial payment of £495.89 (including £199 Admin Fee) followed by 58 monthly payments of £296.89 with a final payment of £495.89 (including optional £199 Option to Purchase Fee). Total amount repayable will be £19,012,40. 26.1% APR, annual interest rate (fixed) 13.3%.
Buying a car on finance: HP versus PCP
If you're thinking about buying a car on finance, two of the most common options are Hire Purchase (HP) and Personal Contract Purchase (PCP). Each has its pros and cons depending on your budget, how long you want to keep the car, and whether you want to own it at the end. In this guide, we’ll answer the most frequently asked questions to help you compare HP and PCP, and explore some alternative ways to finance a car.
Hire Purchase (HP) is a simple and popular way to finance a used car. You usually pay a deposit, followed by fixed monthly payments. Some lenders offer zero deposit car finance, but this can increase your monthly costs. The total amount payable covers the car's full value plus interest.
The agreement is spread over a set term, and once you've made all the payments, including a small ‘option to purchase’ fee, the car becomes yours.
HP suits drivers who plan to keep the car long term and want the security of fixed monthly payments. You don’t own the car until the last payment, but there are no large final payments or mileage limits to worry about.
If you’re looking for a straightforward way to finance a car and eventually own it, HP could be a great choice.
Personal Contract Purchase (PCP) is another flexible way to buy a car on finance. Instead of paying for the car's full value, you only pay for the depreciation, how much the car loses in value during the agreement. This usually means lower monthly payments compared to HP.
At the end of your PCP agreement, you’ll have three options:
PCP works well if you want lower monthly costs or the option to upgrade your car regularly. But it’s important to keep within your mileage limit and return the car in good condition, or you may face extra charges.
If you’re not sure whether you want to keep the car long term, PCP gives you flexibility at the end of the agreement.
The biggest difference between HP and PCP is what you're paying for. With HP, you're covering the car's full value over the term, and then you own it. With PCP, you're paying for the car’s expected depreciation, so your monthly payments are lower, but there’s a large balloon payment at the end if you want to keep it.
HP suits people who want to own the car at the end without a big final payment. PCP suits drivers who want lower monthly costs or plan to switch cars more often.
Another key difference is that PCP agreements usually come with mileage limits and condition requirements, while HP doesn’t.
With HP, owning the car is straightforward. You just keep making your monthly payments, and at the end, pay the small option to purchase fee. Then the car is legally yours.
With PCP, you’ll need to make a larger final payment, known as a balloon payment, if you want to own the car. This is usually thousands of pounds and is based on the car’s predicted value at the end of the agreement. It’s either a fixed sum or a percentage agreed at the start.
Some lenders let you refinance this final payment into a new loan, so you can spread the cost over time instead of paying it all at once.
If owning the car is important to you, HP might be the better fit. But if you’re happy changing cars regularly or want to avoid that final cost, PCP offers more flexibility.
Yes, you have other finance choices depending on your needs.
One option is Personal Contract Hire (PCH), also called car leasing. With PCH, you never own the car, you rent it for a set time, usually two to four years, and return it at the end. It’s ideal if you want to drive a new car without the hassle of selling or ownership.
Another option is a personal loan. This lets you borrow money to buy a car outright. You’ll own the car from day one and repay the loan over time. There are no mileage limits, and you’re free to sell the car at any time.
Both options offer different benefits. PCH may suit those who like changing cars often, while a personal loan can give you full control over the vehicle from the start.
Exploring all your car finance options helps you find the one that fits your lifestyle and budget.
PCP usually offers the lowest monthly payments, since you’re only financing the depreciation. But if you decide to keep the car, the balloon payment can make it more expensive overall.
HP can have higher monthly payments, but there’s no large final cost, so you know exactly what you’re paying from the start. Over time, it may be more affordable if you want to own the car.
Personal loans vary based on your credit score. If you qualify for a low interest rate, it could work out cheaper, especially if you repay the loan early. But for many people, HP or PCP is the preferred option.
To find the best option for you, compare the total amount payable across all choices. A finance calculator can help you work out the long-term cost.
Start by thinking about your goals. Do you want to own the car? Are low monthly payments more important? Do you plan to keep the vehicle long term or upgrade every few years?
If ownership is your priority and you want to avoid mileage limits, HP is likely the better choice. If you prefer flexibility and lower monthly costs, PCP might suit you more. If you want to rent and return the car without owning it, PCH is worth exploring.
Also, consider whether you have a deposit, what your credit score looks like, and how much you can realistically afford each month. A car finance broker or your lender can walk you through the numbers and help you make an informed decision.
Taking the time to understand each option will help you choose the right car finance deal and avoid unwanted surprises later on.
