HP or PCP - which is right for me?

Not everyone wants to pay for a car upfront, so finance could be the way to go.

Both Hire Purchase (HP) and Personal Contract Purchase (PCP) are loans to finance your car. You simply pay a deposit followed by monthly instalments at an agreed interest rate. The length of your agreement can be between 24 and 60 months.

What’s the difference?

Hire Purchase (HP)

Your monthly instalments pay off the total cost of the car, so once you’ve paid the final instalment you own the car. If you'd like to own the car at the end of the agreement, HP is usually cheaper overall than PCP.

No excess mileage charges

You don’t need to worry about keeping track of your mileage.

Personal Contract Purchase (PCP)

With PCP, you pay lower monthly instalments than HP. This is because a large part of the total amount payable is left to the end of the agreement, in the final repayment. 

You have three options when the agreement ends:

  1. You can trade in the car for a new deal
    You can swap the car for another one, subject to the terms of your agreement. If the actual market value of the car is higher than the lender’s predicted value, you can put the difference towards your deposit for a new agreement. New finance agreements are subject to status. 
  2. You can return the car
    You simply hand the car back to the lender. Most lenders will collect the car but you should check the terms of your finance agreement. The car needs to be in good condition and within the agreed maximum mileage or there may be extra charges. 
  3. You can buy the car 
    When you enter into your finance agreement, the lender predicts what the car will be worth when the agreement ends. If you pay this lump sum, called the ‘balloon’ or ‘optional’ final repayment, including any purchase fee, you’ll own the car. If you know that you want to own the car and can afford higher monthly instalments, HP could work out cheaper overall than PCP.

What extra charges will I have?

Excess mileage

When you apply for PCP finance you’ll need to estimate your annual mileage. It’s important your estimate is as accurate as possible as you’ll be charged per mile over the agreed maximum mileage.

Car condition

Normal wear and tear based on your agreed maximum mileage is expected, but you may be asked to pay for any additional damage to the car.

Ending your agreement early

Whether you have a HP or PCP agreement, you have the right to end your agreement at any time by paying off the remaining balance in full. If you have paid half of the total amount payable and are up-to-date with your monthly payments you also have the right to simply hand the car back. This is known as your voluntary termination rights.

If you have a HP agreement and you want to pay it off early, you’ll own the car outright. You may also need to pay an early settlement fee, so don't forget to check your agreement.

If you have a PCP agreement, the mileage and condition of your car will need to be line with what’s stated in your terms and conditions.