Buying a car outright isn’t always realistic – especially with rising living costs, fuel prices and everything else competing for your budget. That’s why many people choose car finance to spread the cost into more manageable monthly payments.
Two of the most common options in the UK are hire purchase (HP) and personal contract purchase (PCP). But what is PCP and HP – and which one might work better for you? Let’s break it down simply.
Both PCP and HP are ways of financing a car where the agreement is secured against the vehicle.
You’ll normally pay an upfront deposit (often around 10%).
You’ll then make fixed monthly payments for the length of your agreement.
You don’t fully own the car until the agreement ends and the final payment has been made.
The key difference lies in what happens at the end of the deal.
With HP, you’re paying off the full cost of the car (plus interest) in monthly instalments. Once you’ve made the last payment – which usually includes a small “option to purchase” fee – the car is officially yours.
Simple to understand – the cost is spread evenly across your term.
You’ll own the car at the end of the agreement.
No mileage limits.
Monthly payments are usually higher than PCP.
You can’t sell the car until you’ve paid it off.
You’re tied to a depreciating asset.
PCP is a little more flexible. Instead of paying off the full car value, your monthly instalments cover the car’s depreciation over the term. At the end, you’ll have three choices:
Pay the balloon payment (a larger final payment) to own the car.
Hand the car back with nothing else to pay (as long as you’ve stuck to the mileage and condition terms).
Part exchange for a new car on a fresh PCP deal.
Lower monthly payments compared to HP.
Flexibility at the end – keep, return or change your car.
Manufacturers often add deposit contributions or servicing packages.
You won’t own the car unless you make the balloon payment.
Mileage limits and wear-and-tear charges can add costs.
That final balloon payment can be expensive, and you may need another loan to cover it.
There’s no one-size-fits-all answer. If you want lower monthly payments and the flexibility to change cars regularly, PCP might suit you. If you’d prefer to eventually own the car outright, HP could be a better option.
Your budget each month
Whether you want to own the car long-term
How many miles you drive each year
At ClearScore, we make it easier to compare your options. You can see personalised car finance offers from trusted lenders – all in one place and without affecting your credit score.