PCP Vs HP – Which Car Finance Is Right For You?

author-img By Ankita Tripathy 5 Mins Read March 16, 2024

Pcp vs hp car finance

If you’ve never had a car on finance before, you may be wondering which car finance agreement is best for your situation. The evolution of car loans has grown year on year, and the two most popular ways to finance a car are through Personal Contract Purchase or Hire Purchase. 

PCP is a form of Hire Purchase, but they have a very different structure and can be better suited to some people over others. Before we dive into both types of agreements, it’s always worth noting car finance can never be guaranteed to anyone who applies, and you will need to meet the lender’s criteria first.  

What Is Hire Purchase? 


Hire purchase is an easy way to finance a car with minimal limitations. It’s a secured loan, which means the lender buys the car from the dealer on your behalf, and you make monthly payments back to the lender. The value of the car and any additional fees/ interest are equally split over the term length; this can be anywhere between 3-5 years, depending on your budget. 

Once all payments have been made, there is a small option to purchase fee to pay, and then the car is yours to own. When buying hire purchase cars, there are no mileage limitations set by the lender but if you fail to meet your repayments, lenders do have the right to take the car off you during the agreement. 

Why Are Hire Purchase Deals Good? 

  • Both the interest rate and monthly payments are fixed, so your deal won’t change over the term. 
  • These deals can be suitable for bad credit applicants because the lender can use the car as collateral if you fail to repay. 
  • Fewer restrictions like no extra fees for exceeding mileage charges or conditional agreements. 
  • There are options to pay off the loan early through early settlement or voluntary termination. 

What Are The Drawbacks Of Hire Purchase? 

  • You won’t own the car until the final option to purchase the fee has been made and the lender owns the car throughout the agreement. 
  • The interest rate you are offered can be affected by your credit score, and applicants with low credit scores could be offered a higher interest rate. 
  • It can be a more expensive way of getting a car once you include interest rates and additional fees rather than buying with cash alone.

How Does PCP Work? 

Personal Contract Purchase is a form of hire purchase, but it has a very different structure.  It’s still secured, which means the lender owns the car throughout the agreement, but there are more options at the end of the agreement to choose from. Unlike HP, PCP deals aren’t split into equal monthly payments across the term. 

Instead, you make lower monthly payments and pay off part of the cost of the loan (and interest or fees). This leaves a larger balloon payment at the end of the deal, which would need to be paid off if you wish to keep the car. If not, you can also hand the car back to the dealer or use any value in the deal towards a new car on finance.  

Why Choose PCP? 

  • More flexibility at the end of the deal, and you don’t have to own the car.
  • Usually, you can get a brand-new car with low monthly payments. 
  • Low or no deposit is needed at the start of the deal. 
  • You could refinance the final payment if you wish to keep the car. 
  • Some plans may include servicing and maintenance costs. 

What To Consider Before PCP?

  • You will need to set an agreed-upon annual mileage at the start of the deal, and exceeding the mileage will result in additional charges at the end of the agreement. 
  • You will also need to agree to keep the car in good condition, and handing it back beyond general wear and tear could also result in fees.
  • The large balloon payment needs to be paid to take ownership of the car, and it can be thousands of pounds to pay, making this an unrealistic option for many drivers.
  • Higher interest rates can be set for those with low credit scores
  • You can get stuck in the agreement for the full term, as it can be expensive to end the deal early. 

Which Is Cheaper: PCP Vs HP? 

If you are thinking about which makes your wallet lighter, think about more than just monthly payments. While PCP can accumulate higher interest and ask for a substantial payment in a given time, it’s important to think carefully. Make sure to calculate the overall cost along with interest and payments, which will give you a better economic choice.

  1. For instance, both HP and PCP are unapplicable when you own the car right from the beginning. 
  2. When it comes to paying up the front deposit, you can use PCP and Hire Purchase features. 
  3. It goes a double tick when there are fixed monthly payments concerned at the time of agreement. 
  4. However, there is an option for a large final payment and lower monthly payments in PCP but not in HP. 
  5. Annual mileage restrictions are considered in PCP. However, it has nothing to do with hire purchase. 
  6. Again, if the vehicle is purchased from a reputed dealership, one can opt for both PCP and HP.

PCP Or HP: Before You Make The Final Call

The final call will always be yours! But before you opt for something, make sure to compare all car finance deals available in your region. Not only does it let you make an informed decision, but it also gives you a better deal for your money. 

Embarking on a new car journey is always exciting. Keep the excitement intact by making the right call for your car. So, that’s all about it! I truly hope this guide helped you get the right suggestion for yourself. Do not forget to comment below and share your thoughts on this. 

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Ankita Tripathy

Ankita Tripathy loves to write about food and the Hallyu Wave in particular. During her free time, she enjoys looking at the sky or reading books while sipping a cup of hot coffee. Her favourite niches are food, music, lifestyle, travel, and Korean Pop music and drama.

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