PCP vs HP: Which Car Finance Option Is Right for You?
Confused between PCP and HP car finance? This quick guide breaks down the key differences, pros and cons, and helps you decide which option is right for your budget and driving needs.
When it comes to financing a new or used car, two of the most popular options in the UK are Personal Contract Purchase (PCP) and Hire Purchase (HP). Both can help spread the cost of a vehicle, but they work differently and suit different types of drivers.
At carloans 365, we believe in making car finance simple and transparent. So in this guide, we’ll break down how PCP and HP work, the pros and cons of each, and how to decide which one’s best for your needs.
What Is PCP?
Personal Contract Purchase (PCP) is a flexible car finance option that allows you to drive a newer vehicle with lower monthly payments compared to other methods. Here’s how it works:
- You pay a deposit (often 10% or more).
- Monthly payments are lower because you're only paying off part of the car's value (not the full amount).
- At the end of the agreement, you have three options:
Pay the final balloon payment (also called the GMFV – Guaranteed Minimum Future Value) to own the car.
Return the car with nothing more to pay (as long as it’s in good condition and within mileage limits).
Part-exchange the car and start a new PCP deal.
Pros of PCP:
- Lower monthly payments.
- Flexibility at the end of the term.
- Great if you want to upgrade your car regularly.
Cons of PCP:
- You won’t own the car unless you pay the final lump sum.
- There may be mileage limits and wear-and-tear charges.
- Ending the agreement early can be costly.
What Is HP?
Hire Purchase (HP) is a more straightforward option where you pay off the full cost of the car in monthly instalments.
- You’ll usually pay a deposit (typically 10%).
- The rest is split into fixed monthly payments over an agreed term (usually 1–5 years).
- Once the final payment is made, the car is yours – no balloon payments or conditions.
Pros of HP:
- You own the car outright at the end.
- No mileage restrictions or final payments.
- Simple to understand and budget for.
Cons of HP:
- Monthly payments are typically higher than with PCP.
- Less flexible if you want to change cars frequently.
Which One Is Right for You?
- Choose PCP if:
- You like changing your car every few years.
- You want lower monthly payments.
- You’re not set on owning the vehicle.
- Choose HP if:
- You want to own the car outright.
- You don’t want to deal with balloon payments.
- You drive a lot and don’t want to worry about mileage limits.
How carloans 365 Can Help
Whether you're leaning towards PCP or HP, carloans 365 is here to help you make the best choice for your budget and lifestyle. We work with a wide panel of lenders to offer flexible car finance options – even if you have bad credit.
Apply online today or speak to one of our friendly finance experts to explore your options with no pressure and no jargon.
