HP vs PCP — side-by-side
- FCA regulated
- No obligation
- Free to check
- ComparesHP vs PCP
- ShowsMonthly · Total cost · End of term
- Mileage limitsHP none · PCP capped
- OwnershipHP automatic · PCP optional
- IllustrativeNot a quote
What is the actual difference between HP and PCP?
Both are regulated finance agreements where the lender owns the car until it is paid for, and both give you the protections of the Consumer Credit Act. The difference is what happens to the value of the car at the end of the term. (A car finance product where you pay a fixed monthly amount and own the car outright at the end of the term.) spreads the entire cash price across your monthly payments, so the balance reaches zero and ownership transfers to you. (A car finance product with lower monthly payments and a large optional final payment (the balloon) if you want to keep the car.) holds back a chunk of that value — the (The minimum value the lender guarantees your car will be worth at the end of a PCP agreement, based on agreed mileage and condition.), or balloon — and you only pay it if you decide to keep the car.
| Hire purchase (HP) | PCP | |
|---|---|---|
| Monthly payment | Higher | Lower for the same car |
| Total cost if you keep the car | Lower | Higher |
| Mileage limit | None | Agreed annual cap, charged per excess mile |
| Condition charges | None — the car is yours | Yes, if returned outside fair wear and tear |
| End of term | You own it outright | Pay balloon, hand back, or part-exchange equity |
| Best for | Keeping the car for years | Changing car every 2–4 years |
| Deposit contributions | Less common | Frequently offered on new cars |
| Voluntary termination | At 50% of total payable | At 50% of total payable |
A like-for-like worked example
| HP | PCP | |
|---|---|---|
| Monthly payment | £435 | £312 |
| Optional final payment | None | £6,100 |
| Total paid if you keep the car | £22,680 | £23,676 |
| Total paid if you hand it back | Not applicable | £16,776 |
| Mileage allowance | Unlimited | 10,000 miles a year |
Which one should you pick?
- Choose HP if you keep cars for five years or more, drive high mileage, want no condition or excess-mileage charges, and want the lowest total cost.
- Choose PCP if you like changing car every two to four years, drive predictable mileage, want the lowest monthly for a given car, and value the option to walk away from depreciation.
- Choose PCP with caution if your mileage is unpredictable — excess-mileage charges are typically several pence per mile and add up fast.
- Choose HP if the car is older or higher-mileage; many lenders will not write PCP on a car that will be very old at the end of the term.
The end of the agreement, in detail
On HP there is nothing to decide. You make the final payment, a small option-to-purchase fee is usually collected, and the V5C is put into your name. The car is an asset you can sell, keep or part-exchange whenever you like.
On PCP you have three routes. You can pay the balloon in cash or refinance it and keep the car. You can hand the car back, owing nothing further as long as it is within the mileage cap and in fair wear and tear condition. Or you can part-exchange: if the trade value exceeds the balloon, the surplus is equity you can put towards the next agreement — and if it does not, that shortfall is (When the amount you still owe on a car finance agreement is higher than the car is currently worth.) you would need to cover.
Mistakes people make comparing the two
- Comparing monthly payments only, and concluding PCP is cheaper. It is cheaper monthly and usually dearer overall if you keep the car.
- Underestimating annual mileage to get a lower PCP payment, then paying excess-mileage charges at the end.
- Assuming handing a PCP car back is always free — condition charges apply outside fair wear and tear.
- Believing negative equity is a PCP-only problem. It happens on HP too, especially on long terms with small deposits.
- Forgetting that voluntary termination at 50% of the total payable is a legal right on both products, not a lender favour.
Sources
- FCA · Motor finance — consumer information · 1 November 2024
- MoneyHelper · Hire purchase and PCP explained · 1 September 2024
- Finance & Leasing Association · Consumer finance statistics · 1 January 2025
Common questions
Is PCP cheaper than HP?
PCP is cheaper each month for the same car, but usually more expensive overall if you keep the car, because interest is charged on the deferred balloon throughout the term. It is cheaper in total only if you hand the car back.Can I own the car at the end of a PCP?
Yes, by paying the optional final payment or refinancing it. Ownership is a choice on PCP and automatic on HP.What happens if I go over my PCP mileage?
You are charged an excess-mileage rate per mile, set out in your agreement. It is typically several pence per mile, so a large overrun can run into hundreds of pounds.Can I switch from PCP to HP mid-agreement?
Not within the same agreement. You would need to settle the existing finance and take out a new agreement, which is worth modelling carefully before committing.Does HP or PCP affect my credit score differently?
No. Both are reported the same way — as a credit agreement with a monthly payment history. What matters is whether you pay on time.Which is better for high mileage?
HP, comfortably. There is no mileage cap and no condition charge, so a high-mileage driver avoids the two costs that make PCP expensive at the end.Is voluntary termination available on both?
Yes. Under the Consumer Credit Act you can end either agreement once you have paid 50% of the total amount payable and the car is in fair condition.Can I get PCP on a used car?
Yes, subject to the car's age and mileage at the end of the term. Older cars are more often written on HP because the residual value is harder to guarantee.
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People also ask
Do I own the car with hire purchase?
You own the car outright once the final monthly payment clears. During the term the finance company is the legal owner, which is why you can't sell it mid-agreement without settling it first.
Is there a mileage limit on HP?
No. Unlike PCP and leasing, hire purchase has no annual mileage limit, which is why HP suits high-mileage drivers.
What is the balloon payment on PCP?
The balloon — properly called the Guaranteed Future Value (GFV) — is the optional final payment that lets you own the car outright at the end. It's set by the lender at the start of the agreement based on the car's forecast value at that point.
What happens if the car is worth less than the balloon?
You simply hand it back. The 'guaranteed' in GFV means the lender takes that price risk, not you — provided the car is in fair condition and within the agreed mileage.
Related reading
Hire Purchase car finance
Own the car at the end, no mileage limits, fixed monthly payments. HP explained honestly by real UK car finance brokers — apply or ask first.
PCP car finance explained
Personal Contract Purchase, honestly explained — the balloon payment, mileage limits, end-of-term options and the real total cost vs HP.
Car finance payment calculator
Estimate your monthly car finance payment on HP or PCP. See how deposit, term and APR change the figure. Illustrative only, no credit search.