The main difference between PCP and HP is what happens to the car's value during the agreement. With Hire Purchase (HP) you pay off the car's full price in monthly instalments and own it outright at the end. With Personal Contract Purchase (PCP) you only pay off the car's depreciation during the term, which means lower monthly payments, but you face a large "optional final payment" if you want to keep the car at the end.
If you want the lowest monthly payment and like changing your car every few years, PCP is usually the more suitable choice. If you want to own the car outright with no big payment at the end — and no mileage limits — HP is normally more suitable. Below we explain exactly how each works, the trade-offs, and which suits different circumstances.
PCP vs HP at a glance
| | Hire Purchase (HP) | Personal Contract Purchase (PCP) |
|---|
| Monthly payments | Higher | Lower |
| What you pay off | The whole car | Mainly the depreciation |
| Large final payment? | No (just a small option-to-purchase fee) | Yes — the optional final payment (balloon) |
| Do you own it? | Yes, automatically at the end | Only if you pay the final payment |
| Mileage limit? | No | Yes — excess mileage charges apply |
| End-of-term options | Keep the car | Keep, hand back, or part-exchange |
| More suitable if you want to… | Own the car long term | Lower payments / change car often |
What is Hire Purchase (HP)?
Hire Purchase is the most straightforward type of car finance. You put down a deposit (often around 10%), then spread the rest of the car's price — plus interest — over fixed monthly payments, typically between 12 and 60 months. Because you are paying off the entire value of the car, the monthly payments are higher than PCP, but there is no large lump sum at the end.
Once you have made your final monthly payment and a small option-to-purchase fee, the car is legally yours. There are no mileage restrictions, so HP is popular with higher-mileage drivers and anyone who wants to keep their car for the long haul.
What is Personal Contract Purchase (PCP)?
PCP keeps your monthly payments lower by deferring a big chunk of the car's value to the end of the agreement. At the start, the lender estimates what the car will be worth at the end of the term — the Guaranteed Future Value (GFV), also called the optional final payment or "balloon" payment. You only finance the difference between the price and that future value, plus interest, so the monthlies are smaller.
At the end of a PCP you have three choices:
- Pay the optional final payment and keep the car.
- Hand the car back and walk away (subject to the agreed mileage and fair wear and tear).
- Part-exchange any equity (if the car is worth more than the final payment) as a deposit on your next car.
PCP comes with an annual mileage limit. Go over it and you'll pay an excess-mileage charge (pence per mile), so it's important to set a realistic mileage at the outset.
The key differences explained
Monthly cost
PCP is almost always cheaper per month than HP for the same car, deposit and term, because you're not paying off the car's full value during the agreement.
Ownership
With HP you automatically own the car once it's paid off. With PCP you only own it if you choose to pay the optional final payment at the end.
Total cost
If you keep the car, PCP can cost more overall than HP once you've paid the final payment, because you're financing the balloon and paying interest on it. HP often works out cheaper in total if you intend to keep the car.
Flexibility
PCP is more flexible at the end of the term — keep, return or upgrade. HP is simpler but commits you to ownership.
Mileage
HP has no mileage limit. PCP does, because the final value depends on the car's condition and mileage.
Which is more suitable for you?
A quick worked example
Imagine a £20,000 used car with a £2,000 deposit over 48 months. On HP, you'd repay the remaining ~£18,000 plus interest across the term, with nothing left to pay at the end — higher monthlies, but the car is yours. On PCP, the lender might set an optional final payment of, say, £8,000; you'd finance roughly £10,000 plus interest across the term, giving noticeably lower monthly payments — but you'd need to pay (or refinance) that £8,000 to keep the car. The exact figures depend on the vehicle, deposit, term and mileage, and all finance is subject to status.
Pros and cons
Hire Purchase
- Pros: you own the car; no mileage limits; often cheaper overall if you keep it; simple.
- Cons: higher monthly payments; less flexibility at the end.
Personal Contract Purchase
- Pros: lower monthly payments; flexible end-of-term options; easy to change car regularly.
- Cons: mileage limits; large optional final payment to own it; can cost more overall if you keep the car.
How to decide
Ask yourself two questions: Do I want to own this car at the end? and How important is a low monthly payment? If owning it matters most, lean towards HP. If keeping payments low and staying flexible matters most, lean towards PCP. It's also worth trying both on a finance calculator for the exact car you're interested in — you can compare PCP and HP side by side on every vehicle page on our website.
Ready to see real figures? Browse our current stock and use the finance calculator on any car to compare PCP and HP for that exact vehicle, or apply for finance for a no-obligation decision.
Frequently asked questions
Is PCP or HP cheaper per month?
PCP is usually cheaper per month than HP for the same car, deposit and term, because with PCP you only finance the car's depreciation rather than its full value. However, if you want to own the car, PCP can cost more overall once you add the optional final payment.
Do you own the car with PCP?
Not automatically. With PCP you only own the car if you pay the optional final payment (the balloon) at the end of the agreement. Until then you don't own it. With HP, by contrast, the car becomes yours automatically once the final monthly payment and option-to-purchase fee are paid.
What is a balloon payment?
A balloon payment — on PCP it's called the optional final payment or Guaranteed Future Value (GFV) — is a large lump sum at the end of a PCP agreement. It reflects the lender's estimate of the car's value at the end of the term. You pay it only if you want to keep the car.
Is HP or PCP more suitable for high mileage?
HP is usually more suitable for high mileage because it has no mileage limit. PCP sets an agreed annual mileage and charges an excess-mileage fee (pence per mile) if you exceed it, which can add up for high-mileage drivers.
Can I pay off PCP or HP early?
Yes. Both HP and PCP can be settled early — you ask the lender for a settlement figure. You may save on future interest, though some agreements include modest early-settlement adjustments. Paying off a PCP early means settling the remaining balance including the final payment if you want to keep the car.
What happens at the end of a PCP agreement?
You have three options: pay the optional final payment to keep the car; hand the car back with nothing more to pay (subject to the agreed mileage and fair wear and tear); or part-exchange any equity towards your next car if it's worth more than the final payment.
Does PCP or HP affect your credit score?
Both are credit agreements, so applying involves a credit check and the agreement appears on your credit file. Making payments on time can help your credit profile; missed payments can harm it. Many lenders offer a soft-search quote that doesn't affect your score before you formally apply.
Which is more suitable, PCP or HP?
Neither is universally right — it depends on your priorities. Choose HP if you want to own the car, keep it long term, or do high mileage. Choose PCP if you want the lowest monthly payments and the flexibility to change or hand back the car every few years.
All finance is subject to status, affordability and lender criteria. Figures and examples are illustrative and do not constitute an offer of finance. Terms and conditions apply; UK residents aged 18 and over.
