Skip to content

PCP vs HP: which one is best for you?

If you’re looking to finance a car, you’re probably wondering what the right option for you is – and one choice you may face is PCP or HP. It may depend on whether you want to keep the car or return it at the end of your agreement. 

While there are other options (such as a personal loan), here’s a look at PCP vs HP to help you decide which car finance option is best for you.

If you’re looking to finance a car, you’re probably wondering what the right option for you is – and one choice you may face is PCP or HP. It may depend on whether you want to keep the car or return it at the end of your agreement. 

While there are other options (such as a personal loan), here’s a look at PCP vs HP to help you decide which car finance option is best for you.

Written by
The Editorial Team
Experts in personal finance, insurance and utilities
Last Updated
29 JANUARY 2025
7 min read
Share article

What is PCP?

Personal Contract Purchase (PCP) is a type of loan that helps you pay for a car, but you don’t own it yourself while paying the debt off. 

You put down a deposit, then pay monthly instalments, plus interest, over a fixed term – typically 24 to 48 months. 

Monthly repayments can often be lower than a personal loan or HP financing. This is because you’re not actually paying off the cost of the car.

Instead, your deposit and monthly repayments cover the car’s depreciation. The amount you borrow is based on the finance company’s prediction of how much value the car will lose over the course of your agreement. 

When your PCP agreement comes to an end, you usually have three options:

  • Return the car
  • Trade it in for a new model using a new PCP agreement (if you’ve equity in the car)
  • Buy the car outright with a final payment, called a balloon payment

Pros of PCP

  • Monthly repayments may be lower than other types of car finance
  • Payments are fixed, so you know exactly how much you’ll be paying each month. This can make it easier to budget
  • You don’t have to worry about your car losing value over time
  • You won’t have the hassle of selling the car yourself if you want to change vehicle
  • Flexible options at the end of the deal: return the car, possibly trade it in or buy it outright
  • PCP is an easy option if you like to regularly upgrade your car to a newer model
  • Many PCP deals include extras such as car insurance, service and maintenance packages
  • If you keep the car in above-average condition, then you may be able to sell it privately for more than the cost of the balloon payment.

Cons of PCP

  • If you want to keep the car, you’ll need to make a final balloon payment
  • Your PCP agreement may limit the number of miles you can drive
  • You may be charged extra for exceeding the agreed mileage limit
  • You may be charge extra for damage to the car or excessive wear and tear
  • PCP deals are usually limited to newer vehicles
  • The loan is secured against the vehicle. If you fail to keep up with repayments, you could lose your car and damage your credit score. 

What is HP?

Hire Purchase (HP) can be one of the simplest ways to finance a car. 

You put down a deposit, then pay off the full value of the car, plus interest, in monthly instalments over a fixed period. Once you make the final payment, the car is yours to keep. 

Monthly repayments tend to be higher than PCP car finance. This is because you’re paying off the cost of the car and there’s no final balloon payment at the end of the agreement, bar a nominal sum.

You could lower the monthly repayments by spreading the cost over a longer period of time – up to 60 months in some cases. This does mean you’ll be paying interest for longer though, so it could cost you more overall.

Pros of HP

  • You own the car outright at the end of the agreement without having to make a large final payment
  • Payments are fixed, so you know exactly how much you’ll be paying each month. This can make it easier to budget
  • There aren’t restrictions, such as mileage limits, and charges for damage
  • HP finance is secured against the car, so if you have bad credit it could be easier to get than a standard car loan
  • HP is available for both new and used cars.

Cons of HP

  • The deposit and monthly repayments may be higher compared to a PCP finance deal
  • If you spread the loan over a longer period, you’ll pay more interest overall
  • You won’t own the car until you finish making all the repayments
  • If you fail to keep up with repayments, the car finance company could repossess your vehicle
  • Missed payments could damage your credit score.

Differences between HP and PCP

The main differences between HP and PCP are:

  • You don’t own the car at the end of a PCP agreement unless you make a balloon payment
  • PCP agreements often have mileage restrictions
  • You’ll be charged for damage, and excessive wear and tear, at the end of a PCP agreement
  • You can return the car at the end of a PCP deal.

Otherwise, with both HP and PCP:

  • You need to pay a deposit
  • You need to undergo a credit check
  • Monthly repayments are fixed
  • The loan is secured against the car.

How much does a car cost on HP vs PCP?

The following table gives you a rough idea of how much a £20,000 car could cost you on HP vs PCP finance. Our example is for illustrative purposes only. The APR you could get depends on your credit score and financial situation.

  HP PCP
Car price £20,000 £20,000
Deposit amount* £2,000 £2,000
Loan amount £18,000 £18,000
Loan term 36 months 36 months
Representative APR** 9.9% 9.9%
Monthly repayments £576 £317
GMFV/final balloon payment*** £10 £11,060
Total cost of car £22,760 £24,163

* Assumes a 10% deposit.
** Assumes the customer has a good to excellent credit rating.
*** Depreciation assumed by our partner Car Finance 247’s calculator.
Numbers rounded

As you can see, the monthly repayments on a PCP agreement are much lower than an HP agreement. However, you’ll need to pay out a hefty chunk at the end of your contract to cover the final balloon payment. 

Even with larger monthly repayments, the total cost of financing your car could work out cheaper on an HP agreement.

PCP or HP: which is better for me?

Whether PCP or HP is better for you largely depends on your personal preference and financial situation. 

PCP may be right for you if:

  • You like to change your car every few years
  • You’re concerned about the car’s depreciation
  • You’re not sure if you’d like to keep the car or return it at the end of the deal
  • You feel more comfortable with lower monthly repayments.

HP may be right for you if:

  • You want to own the car after the agreement has ended
  • You can comfortably afford the higher monthly repayments
  • You travel a lot and don’t want to be limited to a certain number of miles
  • You don’t want the worry of extra charges if you damage the car. 

How should I compare PCP and HP car deals?

When comparing PCP and HP car deals, pay attention to:

  • The APR – the higher the APR, the more you pay in interest. The APR you’ll get is determined by the lender, your credit circumstances, the amount you’re borrowing and the length of your loan.
  • The overall cost – look beyond the monthly repayments and work out how much interest you’ll be paying in total, plus any final payments. The longer the loan term, the longer you’ll pay interest for. This could make a significant difference to the overall cost of the loan.

Where can I compare PCP and HP car finance deals?

There are a number of places you can compare PCP and HP car deals to find the right one for you, such as:

  • Compare car finance deals through Compare the Market. We’ve partnered with Car Finance 247, a leading car finance broker, to help you find the right PCP or HP car finance deal for your credit circumstances. 
  • The car dealer (and try to negotiate). They’ll typically offer various car finance deals, including PCP and HP agreements. However, you’ll be limited to the cars and deals available through that particular dealership.

What other car finance options are available?

If you’re not sure about PCP or HP, and leasing’s not for you, you might want to consider a personal loan

With a personal loan, you borrow a sum of money and pay it back in monthly instalments, at a fixed interest rate. The interest rate you receive depends on your credit score, among other factors. You’d own the car straightaway, so you could modify it or sell it on at any time. 

Just be aware that the longer you have the loan, the more interest you’ll pay.

About Car Finance 247 Limited (Car Finance 247)

CarFinance 247 Limited (Car Finance 247) is one of the UK’s leading car finance brokers uniting buyers, car dealers and finance providers. Car Finance 247 acts as a credit broker, not a lender, which means it will show you and distribute products offered by lenders.

Advice is provided by Car Finance 247, which is authorised and regulated by the Financial Conduct Authority (653019).

Car Finance 247 is not part of Compare the Market Limited. Compare the Market receives a % of the commission that our partner Car Finance 247 earns. All applications are subject to lending and eligibility criteria.

Car Finance 247 will not charge you a broker fee should you decide to proceed with a car finance product.

Car Finance 247 is a credit broker, not a lender, and will show you products offered by lenders. To apply you must be a UK resident aged 18 or over. Credit is subject to status and eligibility.

Frequently asked questions

When can I change my car on HP or PCP?

It’s possible to change your car before the HP or PCP deal ends. You can do this either by:

  • Paying the outstanding amount of the loan, including any fees. This is called the settlement fee. If the car is worth more than the settlement fee, you can put the difference towards a new car. But if it’s worth less, you’ll need to pay the difference, as well as pay the deposit for your new car.
  • Terminating the deal after you’ve paid off at least 50% of the total finance amount. You can then start your next deal.

Can I end my car finance early?

Yes, you can end your HP or PCP finance early. Under the Consumer Credit Act, you typically have an initial 14-day cooling-off period during which you can end a car finance agreement. This is useful if you change your mind in the early days of the contract.

Further down the line, if you’ve paid off at least 50% of the loan agreement (including interest and fees) you can opt for ‘voluntary termination’. This is a consumer right that allows you to end a finance agreement early.

Alternatively, you can pay off what you owe and keep the car or sell it. Check your contract to see if an early termination fee applies and, if so, how much it will be. You may decide it’s not worth ending your agreement early unless you really must.

Is car financing better than leasing?

Car financing may be better than leasing if you want the option of owning the car at the end of your agreement. But it all depends on your precise circumstances, so we cannot say for certain. 

Leasing, sometimes known as Personal Contract Hire (PCH), is essentially a long-term rental agreement. At the end of the deal, you can return the car or replace it with a brand-new model under a new leasing agreement. But you never have the option of owning the car. 

However, if you want a brand-new car every couple of years and aren’t bothered about owning it, leasing might work better for you than car financing.

How do I get the best finance deal?

Use these tips to help you get the best finance deal:

  • Look for 0% interest offers – it’s possible to find PCP deals with 0% interest. But you’ll typically need a good credit score and a sizeable deposit to access an interest-free deal.
  • Build your credit score – improving your credit rating before you apply for car finance could give you better access to the best deals.
  • Shop around – the PCP market, especially, is incredibly competitive, so don’t just opt for the first offer you find. Compare multiple lenders to see if you can find a better deal elsewhere.

You can compare car finance deals through Compare the Market. We’ve partnered with Car Finance 247, a leading car finance broker, to help you find the right PCP or HP car finance deal for your credit circumstances.