Finance

PCP vs HP car finance – which is best for you?

• 2 min read

Mike Vousden

Content Editor

Mike is a Content Editor at Motorpoint. He's written for several motoring mags, and worked as an electric car analyst. He likes EVs, V8s and '60s American cars

Personal Contract Purchase (PCP) and Hire Purchase (HP) are the two most common ways to finance a car.

They let you break down the cost into manageable monthly payments, spreading the total amount over the course of the agreement.

This guide explains PCP and HP finance, and compares the pros and cons of each so you can choose the option that suits you best.

PCP vs HP overview

	PCP	HP
Monthly payments	Lower monthly payments	Higher monthly payments
Deposit	You normally put down a deposit, but no-deposit finance is available	You normally put down a deposit, but no-deposit finance is available
Interest	You usually pay interest on the money you borrow	You usually pay interest on the money you borrow
Mileage limits	You have to stick to mileage limits (unless you pay the balloon and buy the car outright)	There is no mileage limit
Damage and condition limits	You'll have to pay for any damage above fair wear and tear (unless you pay the balloon and buy the car outright)	There are no damage or condition limits
Will you own the car?	You don't own the car at the end of the agreement	You own the car at the end of the agreement
Options at the end of the agreement	Pay or refinance the balloon payment to own the car Part-exchange the car and roll any positive equity into a new PCP finance agreement Hand the car back to the finance company	Keep the car as long as you like Sell the car

Comparing PCP and HP finance examples

Every car for sale on the Motorpoint website includes a finance calculator. This lets you see an example of how much it'd cost on either PCP or HP finance. Here, we're comparing PCP and HP finance costs for a Kia Sportage – a popular family SUV.

Our example comes from Motorpoint stock at the time of writing, with a 2026 numberplate, 9,500 miles on the odometer and a retail price of £29,999.

	PCP	HP	Difference
Cash price	£29,999	£29,999	-
Deposit	£3,000	£3,000	-
Monthly payment	£450.07	£689.84	+ £239.77
Final payment/balloon payment (incl. £10 purchase fee)	£14,318	£699.84	- £13,618.16
Duration	49 months	48 months	- 1 month
Representative APR	10.9%	10.9%	-
Total amount of credit	£26,999	£26,999	-
Total interest payable	£8,922.45	£6,113.32	- £2,809.13
Total amount payable	£38,921.45	£36,112.32	- £2,809.13
Mileage limit	6,000 miles per year	No limit	-
Condition limit	Only fair wear and tear	No limit	-

The three main differences between PCP and HP are the monthly cost, the final payment and the interest payable.

PCP is cheaper than HP for monthly costs, by quite a large margin. This is because you're not paying off the full price of the car – instead you're paying the difference in what it's worth now and what it's projected to be worth at the end of the contract.

However, PCP has the large final balloon payment if you want to own the car – whereas a HP buyer fully owns the car at the end of their agreement. If you don't have a large sum available for the PCP balloon payment, you'll need to refinance it or use a bank loan to pay it off, so you'll pay a bit more interest on top of your existing agreement. Alternatively, you can put any positive equity into a new PCP agreement on a different car and continue making monthly payments.

Over the finance agreement, the HP buyer will pay less total interest than the PCP buyer. However, the HP buyer will have had larger monthly payments during the agreement.

Pros and cons of PCP finance

Pros	Cons
Lower monthly payments than HP Gives you the option to put any positive equity towards a new finance agreement Suits drivers who want to change their car every few years Any unexpected drops in vehicle value fall on the finance company if you hand the car back	You'll usually pay more total interest over the agreement than HP You must stick to mileage and condition limits Large balloon payment if you want to own the car You might need to refinance or get a bank loan to cover the balloon

Pros and cons of HP finance

Pros	Cons
You fully own the car at the end of the agreement with no balloon payment You'll usually pay less total interest than a PCP agreement No mileage or condition limits Might be a better choice if you plan to keep your car for a long time	Higher monthly payments than PCP Will probably cost more in the long term if you end up changing your car regularly You bear any unexpected drops in your vehicle's market value

Is PCP or HP finance cheaper?

That depends on how you define 'cheaper'. PCP has cheaper monthly payments, so the same monthly budget will buy a nicer or newer car than it would on HP. However, HP finance will usually see you pay less in total as your interest costs will be lower.

Which of these option works out cheaper for you often depends on your goals with car ownership. If you want to change cars every few years, it might work out cheaper to take out PCP finance. However, if you want to own your car for a long time, HP finance might be cheaper overall.

Is HP or PCP finance better for poor credit?

The same pros and cons broadly apply to PCP and HP finance, even if you're financing with a poor credit score. In this situation, you might find that PCP or HP are actually more viable options than getting an unsecured bank loan, since the car is owned by the finance company until the agreement finishes, so the buyer represents less of a risk.

Whichever type of finance you pick, it's very important that you choose an agreement that's affordable for you. Finishing a finance agreement with all payments made on time will improve your credit score. However, defaulting on your monthly payments will quickly damage your credit score and see the car repossessed.

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