PCP vs HP: Which Car Finance Option Should You Choose?

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PCP (Personal Contract Purchase) and HP (Hire Purchase) are the two most common ways to finance a car in the UK. Both allow you to spread the cost over time, but they work very differently and suit different types of drivers.

This guide compares PCP vs HP so you can decide which option fits your budget, driving habits and long-term plans. You can then use the PCP Finance Calculator to model your monthly payments.

How PCP Works

With PCP, you pay a deposit and then make monthly payments based on part of the car's value, not the full amount. At the end of the term you can either pay the balloon payment (GMFV) to keep the car, hand it back, or part-exchange it.

• Lower monthly payments than HP
• Balloon payment at the end if you want to own the car
• Mileage limits and condition requirements apply

How Hire Purchase (HP) Works

With HP, you are repaying the full cost of the car over the term. There is no balloon payment at the end. Once you make the final payment, the car is yours.

• Higher monthly payments than PCP
• No large final payment
• You own the car automatically at the end
• Usually no mileage limits

Cost Comparison Example

Here is a simplified example to highlight the differences:

• Car price: £18,000
• Deposit: £2,000
• Term: 36 months
• APR: 7%

PCP Example

With PCP, you might have:

• GMFV (balloon): £8,000
• Monthly payments: lower, because you are only repaying part of the value
• Option to pay £8,000 at the end to keep the car

HP Example

With HP, you repay the full £18,000 (minus deposit) over 36 months:

• Monthly payments: higher than PCP
• No balloon payment at the end
• You own the car once the final payment is made

To see how these differences affect your own situation, you can plug your figures into the PCP Finance Calculator and compare them with a standard loan or HP quote.

Ownership vs Flexibility

The key difference between PCP and HP is ownership:

• PCP: You only own the car if you pay the balloon at the end.
• HP: You own the car automatically once all payments are made.

If you know you want to keep the car long-term, HP can be simpler and sometimes cheaper overall. If you like to change cars regularly, PCP offers more flexibility.

Which Is Better for You?

PCP may be better if you:

• Want lower monthly payments
• Prefer to change cars every few years
• Are comfortable not owning the car outright
• Stay within mileage limits

HP may be better if you:

• Want to own the car at the end
• Drive high mileage and do not want mileage limits
• Can afford higher monthly payments
• Plan to keep the car for many years