PCP vs HP: Which Car Finance Is Right for You?

Summary

• PCP has lower monthly payments but you don't own the car unless you make a final balloon payment.
• HP gives you ownership: Monthly payments are higher but you own the car at the end.
• Check for outstanding finance before buying any used car with our finance check.

About 90% of new cars in the UK are bought on finance. PCP and HP are the most common types. But which one is better for you?

This guide explains the difference in plain English.

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How PCP (Personal Contract Purchase) Works

1. You pay a deposit (usually 10-20% of the car's price).
2. You make monthly payments for 2-4 years.
3. At the end, you have three choices:
   • Hand back the car and walk away.
   • Pay the balloon payment to own the car outright.
   • Use any equity as a deposit on a new PCP deal.

Monthly payments are lower because you're only paying the difference between the car's new price and its predicted value at the end of the contract (the Guaranteed Minimum Future Value).

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How HP (Hire Purchase) Works

1. You pay a deposit (usually 10%).
2. You make monthly payments for 3-5 years.
3. After the final payment, you own the car.

Monthly payments are higher than PCP because you're paying off the full cost of the car. But at the end, it's yours — no balloon payment needed.

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PCP vs HP: Side-by-Side Comparison

Feature	PCP	HP
Monthly payments	Lower	Higher
Own the car at end?	Only if you pay the balloon	Yes, automatically
Mileage limits	Yes (excess charges apply)	No
Condition requirements	Must return in good condition	No restrictions
Flexibility at end	Three options (keep, return, trade)	You own it, do what you want
Best for	Lower budgets, new car every 3 years	Keeping the car long term

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Which Is Cheaper Overall?

It depends on what you do at the end.

If you plan to keep the car: HP is usually cheaper overall because there's no large balloon payment at the end.

If you want a new car every 3 years: PCP makes more sense. You hand back the car and start fresh.

Total cost comparison example (£20,000 car):

• PCP: £200/month for 48 months + £8,000 balloon = £17,600 + £2,000 deposit = £19,600
• HP: £350/month for 48 months = £16,800 + £2,000 deposit = £18,800

HP costs less in total if you keep the car. PCP costs less per month if you hand it back.

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What to Watch Out For

• PCP mileage limits: Going over costs 5p-30p per mile. Be realistic when choosing your annual mileage.
• APR rate: Compare the APR, not just the monthly payment. A lower monthly payment with a higher APR costs more overall.
• Balloon payment: Make sure you can afford it if you want to keep the car. Or plan to hand it back.
• Negative equity: In the first year or two, the car may be worth less than you owe. Read our negative equity guide.

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Which Should You Choose?

Choose PCP if:

• You want lower monthly payments
• You like driving a new car every few years
• You do predictable, moderate mileage

Choose HP if:

• You want to own the car at the end
• You do high mileage
• You want no restrictions on modifications or condition

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Both PCP and HP are legitimate ways to finance a car. The right choice depends on your budget, how long you want to keep the car, and how many miles you drive. Do the maths, compare the total costs, and choose what fits your life.

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