Model payments with our car finance calculator. It uses standard loan maths; real PCP agreements include a deferred final payment that our simplified model approximates via term and APR — always verify against your credit agreement.
The essential difference
Hire purchase is designed so you pay off the vehicle (plus interest) over the term and then own it. PCP defers a lump sum to the end so monthly payments stay lower during the agreement; you decide later whether to pay that lump sum, return the car, or roll into another deal.
Neither structure is automatically “cheaper.” The cheaper option depends on interest rate, term, how long you keep the car, mileage you drive, and whether you would have bought a cheaper car outright with a loan instead.
Worked example: same car, different psychology
Imagine a £18,000 used car and a £3,000 deposit. With HP you might finance £15,000. With PCP, the finance company might set a future value of £7,000, so you only “repay” £8,000 of depreciation plus interest over three years — but you still owe or must refinance that £7,000 if you want to keep the car.
Lower monthly payments on PCP do not mean lower total cost unless the APR and fees are also favourable. Sometimes PCP campaigns include subsidised rates on new cars; sometimes HP is simpler and easier to compare across lenders.
Ownership and selling privately
With HP the car is often subject to the lender’s interest until you settle. With PCP you typically do not own the car until you pay the optional final payment (and any fees). That affects whether you can sell privately mid-agreement — usually you must settle the finance first. Check your agreement for process and settlement quotes.
Mileage and condition (PCP)
PCP agreements forecast a future value based on agreed annual mileage and fair wear and tear. Exceed the mileage or return a damaged car and you may face charges. If you drive high motorway miles, compare those pence-per-mile excess costs against an HP deal where you are not returning the car to the finance house in the same way.
When HP tends to suit
Buyers who want straightforward ownership, who plan to keep the car many years after the loan ends, and who dislike end-of-term decisions often prefer HP. The payment path is predictable: once finished, you are done with monthly finance on that vehicle.
When PCP tends to suit
Buyers who like changing cars every few years, who can manage a final payment or hand-back, and who benefit from manufacturer deposit contributions may find PCP convenient. It is widely used on new cars where residual values are modelled carefully by the captive finance arm.
Comparing APR fairly
Always compare like with like: same cash price, deposit, and term where possible. If one quote includes a service plan or insurance bundled in, separate those costs mentally. Use the calculator with the APR you are actually offered after a credit check, not only the headline representative rate.
Common misconceptions
“PCP is always cheaper monthly so it must be cheaper overall.” Not necessarily — the balloon can be large. “HP has no flexibility.” You may still be able to settle early or refinance, subject to fees. “I own the car on PCP from day one.” Typically you do not until the optional final payment is made.
Interpreting your calculator results
After you run numbers, ask the dealer or lender how their PCP quote differs from a simple amortising loan. If they cannot explain it clearly, treat that as a red flag. Good salespeople should be able to walk through the total payable, the optional final payment, and any fees line by line.
Insurance, GAP, and add-ons
Finance offices sometimes offer GAP insurance, tyre and alloy cover, or extended warranties alongside the credit agreement. These products can be legitimate, but they also increase your monthly outgoings. Ask for the standalone price, whether the premium is financed (so you pay interest on it), and whether you can buy equivalent cover elsewhere after comparing terms. Never feel obliged to buy an add-on to “get approved” — creditworthiness should be assessed separately from optional insurance.
Part-exchange and negative equity
If you part-exchange a car mid-PCP, you might have equity if the car is worth more than the settlement figure — or negative equity if it is worth less. Rolling negative equity into a new deal increases the next loan and can trap buyers in a cycle of higher payments. Before you agree, ask for the settlement figure in writing and compare it to trade-in offers from more than one buyer.
If something goes wrong
If you believe the finance was mis-sold or the terms were unclear, use the lender’s complaints procedure first. Eligible disputes may be referred to the Financial Ombudsman Service. Keep copies of adverts, emails, and the signed agreement. Our guides are educational only; they do not replace regulatory protections or legal advice.
Practical checklist before you choose
Write down the cash price, deposit, term, monthly payment, total payable, APR, and (for PCP) the optional final payment. Run the same cash price and deposit through our calculator with the APR you were offered. Ask the lender to reconcile any gap. Confirm whether you want to own the car at the end or prefer flexibility to hand it back. Sleep on the decision if you feel rushed — competitive deals rarely evaporate overnight, and clarity is worth more than a same-day discount.