PCP and hire purchase (HP) are the two most common ways to finance a car in the UK. Both spread the cost over monthly payments, and with both the lender owns the car until you’ve paid everything. The big difference is what happens at the end: HP payments work towards owning the car, while PCP keeps your payments lower by leaving a large optional final payment. This guide compares them side by side, using the same car for both.
In short
With HP, you pay off the whole price in monthly payments and own the car at the end. With PCP, monthly payments are lower because a large “optional final payment” is left until the end, when you can pay it and keep the car, hand the car back, or part-exchange it. PCP usually costs more in total if you keep the car, but gives more flexibility.
PCP vs HP at a glance
| Hire purchase (HP) | PCP | |
|---|---|---|
| Monthly payments | Higher | Lower |
| Final payment | None (or a small option fee) | Large, optional |
| Who owns the car during the deal | The lender | The lender |
| At the end | You own it | Pay to keep it, hand it back or part-exchange |
| Mileage limit | No | Yes, with excess mileage charges if you hand it back |
| Condition rules | Only if you return it early | Fair wear and tear rules if you hand it back |
| Total cost if you keep the car | Usually lower | Usually higher |
| Voluntary termination at 50% | Yes | Yes, but takes longer to reach |
| Best for | Keeping the car for years | Changing car every few years |
The same car on HP and PCP
Worked example
A car costs £20,000. You pay a £2,000 deposit and borrow £18,000 over 36 months at an illustrative APR of 10.9%. On the PCP, the lender sets the optional final payment at £8,000.
| HP | PCP | |
|---|---|---|
| Monthly payment | £584.12 | £393.78 |
| Paid in monthly payments | £21,028 | £14,176 |
| Final payment | None | £8,000 (optional) |
| Total if you keep the car | £23,028 | £24,176 |
| Total if you hand the car back | Not applicable | £16,176 (deposit and monthly payments) |
The PCP costs about £190 a month less, but about £1,148 more in total if you keep the car. That’s because with PCP you pay interest on the £8,000 final payment for the whole term. These figures ignore fees and are not a quote.
Which costs less?
If you plan to keep the car, HP usually costs less overall, because you pay off the amount borrowed faster and so pay less interest.
PCP can work out cheaper in a different sense: if you’d hand the car back or change it after three or four years anyway, you only pay for the part of the car’s value you use, plus interest. In the example above, handing the PCP car back after three years means you’ve paid £16,176 in total and don’t own anything at the end, but you never had to find the £8,000.
The right comparison is the total amount payable for the way you’ll actually use the car. Both figures are shown on every quote and agreement. See car finance APR and interest rates for how to compare deals.
Flexibility at the end of the deal
- HP: once you’ve made the last payment (and any small “option to purchase” fee), the car is yours. There’s nothing more to decide.
- PCP: you choose between paying the final payment, handing the car back, or part-exchanging it. The final payment is guaranteed by the lender, so if the car is worth less, you can hand it back and owe nothing more, as long as you’re within the mileage limit and it’s in reasonable condition. See your options at the end of a PCP.
Important
PCP’s lower monthly payments can make a more expensive car look affordable. Always check what you’d pay in total if you keep the car, and whether you could afford the final payment, or would be happy to hand the car back.
Mileage and condition
HP has no mileage limit, because you’re buying the car outright over time. PCP sets an annual mileage when you take out the deal, because the final payment is based on what the car should be worth at that mileage. If you hand the car back over the limit, you’ll pay an excess mileage charge for every extra mile.
Setting the mileage too low keeps payments down but risks charges later. Set it at what you really expect to drive. If you go on to keep the car by paying the final payment, the mileage limit stops mattering.
Ending the agreement early
Both HP and PCP are forms of hire purchase, so regulated agreements give you the same two rights:
- Settle early: pay a settlement figure, usually with a rebate of future interest, and keep or sell the car.
- Voluntary termination: hand the car back once you’ve paid half the total amount payable.
With PCP, the final payment counts towards the total amount payable, so the halfway point comes later. In the example above, you’d reach half on the HP after about 17 payments, but not until about 26 payments on the PCP.
Which should you choose?
HP may suit you if you:
- want to own the car and keep it for years
- want the lowest total cost
- drive a lot of miles
- don’t want to think about condition and mileage when the deal ends
PCP may suit you if you:
- like to change car every three or four years
- want lower monthly payments
- drive a predictable mileage
- want the option to hand the car back if it’s worth less than the final payment
If you’d rather not own the car at all, see car leasing, which works like a long-term rental.
PCP vs HP FAQs
Is PCP or HP better?
Neither is better for everyone. HP usually costs less in total and you own the car at the end. PCP has lower monthly payments and more choice at the end, but usually costs more if you keep the car.
Can I switch from PCP to HP?
Not within the same agreement. You could settle your PCP early and take out new finance, or at the end of a PCP, refinance the final payment with an HP agreement or a loan. See final payment options.
Is it harder to get PCP than HP?
PCP is more often available on newer cars from franchised dealers, and some lenders are stricter about PCP with a poor credit history. HP is available on a wider range of new and used cars. See bad credit car finance.
Do I own the car with PCP?
Not unless you pay the optional final payment. Until then, the lender owns it. With HP, you own the car once you’ve made the last payment.
Which is better for high mileage?
HP, because there’s no mileage limit. With PCP, a higher mileage means a lower final payment and higher monthly payments, and you’ll pay excess mileage charges if you go over and hand the car back.