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 based on your credit rating. 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.

Ending your agreement early

You can pay off the agreement early at any time and you’ll own the car. You may need to pay an early settlement fee so don't forget to check your agreement.

You have the right to terminate your HP agreement and hand back the car before the end of the deal. If you haven’t already, you'll need to pay 50% of the total finance deal (including interest and fees). The steps you’ll need to take are set out in your agreement with your lender.

Personal Contract Purchase (PCP)

With PCP, you pay lower monthly instalments than HP. This is because you’re paying off only part of the car’s cost during the finance agreement. 

You have three options when the agreement ends:

  1. You can trade in the car for a new deal
    If the actual market value of the car is higher than the lender’s predicted value - and often it will be - you can put the difference towards your deposit for a new PCP deal. If for some reason the market value of the car is lower, you hand back the car with nothing more to pay.
  2. You can return the car
    You simply give the car back to the lender. Most lenders will collect the car but you should check your finance agreement.
  3. You can buy the car 
    When you agree your finance deal, the lender predicts what the car will be worth when the agreement ends. If you pay this lump sum, called the ‘balloon’ or ‘optional’ payment, you’ll own the car. If you know 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 close to your usual mileage as possible, or a little more, as you’ll be charged per mile over the estimate.

Car condition

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

Ending your agreement early

You have the right to terminate your PCP agreement and hand back the car before the end of the deal. You’ll need to pay 50% of the total finance deal including the optional final amount (the balloon), interest and fees. You’ll be charged for mileage that goes over the agreed estimate. The steps you’ll need to take are set out in your agreement with your lender.