PCP and HP are the two dominant car finance products sold in UK dealerships. They look similar — both involve monthly payments over 2-4 years — but work very differently. The right choice depends on whether you want to own the car, how much you drive, and your long-term plan.
How PCP Works
Personal Contract Purchase (PCP) splits the car's cost into a deposit, monthly payments, and a final "balloon" (Guaranteed Future Value). Monthly payments only cover part of the value. At end: pay the balloon and own the car, return it, or use equity as deposit on a new deal.
- •Low monthly payments — not paying for full value
- •GFV/balloon payment to own car at end
- •Return car at end — no equity, no debt
- •Mileage limits typically 8,000-15,000 miles/year
- •Excess mileage charges: typically 5-15p per mile
What if the car is worth less than the balloon payment?+
The GFV is fixed by the lender. If the car is worth less, simply return it. The depreciation risk sits with the finance company.
How HP Works
Hire Purchase is more straightforward. A deposit, then monthly payments covering the entire car value plus interest. No balloon payment. After the final payment, you own the car outright. Monthly payments are higher than PCP for the same car.
- •Higher monthly payments than PCP — paying full value
- •No mileage restrictions
- •Own the car after final payment
- •Can settle early (subject to settlement figure)
- •Straightforward loan structure — easier to understand
PCP vs HP Side-by-Side
Comparing both on a £20,000 car over 4 years with a £2,000 deposit.
- •PCP monthly: ~£250-£280 (GFV covers ~£8,000)
- •HP monthly: ~£390-£430 (covers full remaining balance)
- •PCP total if keeping car: ~£21,000-£22,000
- •HP total: ~£21,000-£22,000 (similar, but you definitely own it)
- •PCP total if returning: ~£13,000-£14,000 — but no car
Which Should You Choose?
Choose PCP if you want flexibility of returning/upgrading every 3-4 years, drive predictable mileage, and don't need to own the vehicle. Choose HP if you want to own the car, drive high mileage, or want a simpler deal with no balloon payment risk.
- •PCP: low-mileage drivers who like upgrading every few years
- •HP: high-mileage drivers who want to own long-term
- •Personal loan: often cheapest with a good credit score
- •Never stretch your budget for either
- •Read the full agreement — especially mileage and condition terms
#pcp#hp car finance#car finance#personal contract purchase#hire purchase
Start Your Savings Journey Today
20+ savings challenges, daily tracking, and achievement badges -- all free.
Download on the App Store