PCP vs HP: Which Car Finance Option is Best For Me?

Chloe Murphy 4 minutes Published: 14/06/2021

Cars tend to be one of the most expensive things we buy, so it’s no surprise that everyone’s eager to get the best deal. But in the battle of car finances, it’s easy for things to get complicated. 

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

Each operates differently with its own advantages, but comparing the nitty gritty details when deciding the best way to buy car can feel overwhelming to say the least. Since they’re worth knowing about before you sign yourself up for any deals, we’re here to give you the details straight.

In this article we’ll go over how both HP and PCP deals work, and compare the pros and cons of each to help you make up your mind. 

What is PCP?

We've done a whole post on what is financing a car, so you should read that before diving into this post!

So, what is PCP finance exactly? Personal Contract Purchase is one of the most popular ways to get a new car, as your total monthly payments don’t make up the full cost of your car. 

As you’re only paying for the guaranteed minimum future value (GMFV), which is the loss in value of the car from the day you get it till the day you return it, your monthly cost is typically cheaper than HP. 

However you’ll still have a final balloon payment to cash out for if you want to own the car at the end of the agreement. Alternatively, you can get a part exchange on a new car.

You aren’t always required to put down an initial deposit on a PCP finance deal, but like with most other finance options, the higher the deposit, the lower the monthly payments. 

What is HP?

Car Hire Purchase allows you to basically hire your car over a term, but unlike PCP, your monthly instalments over the length of the contract are making up the total cost of the car. 

You’ll typically put down a deposit, then agree to a monthly repayment and interest rate over 3-4 years. This means that at the end of your contract, there’s no costly lump sum, and the car is yours to keep.

Similar to most finance methods, until you’ve paid off this total amount, the car remains the property of the dealership, lender or finance company. 

Pros and cons of each

In our individual Personal Contract Purchase and Hire Purchase posts, we take an in depth look at the advantages and disadvantages, so here we’ve kept it brief to help you compare.

PCP Pros and Cons

Pros

  • Low monthly payments

  • Flexibility

  • Regular affordable upgrades

Cons

  • Excess mileage charges

  • Damage and excess wear fees

  • You don’t own the car

Hire Purchase Pros and Cons

Pros

  • Fixed interest rates

  • No mileage restrictions

  • Good for low credit scorers

Cons

  • High monthly payments

  • You don’t own the car till final payment

  • High interest

Which is right for me?

The right choice entirely comes down to personal preference and circumstance. Both offer the option to get a used car, but PCP is likely to work out cheaper if you’re going to want to replace it a few years down the line.

PCP agreements are a great option if you like a new set of wheels, as paying the depreciation results in lower monthly payments, and there’s usually no upfront cost. You also get the flexibility of options at the end of the contract. But since the car isn’t yours unless you take the optional final payment, you have more limitations. You have to keep the car in good condition, potentially agree to a servicing schedule, and stick to the agreed annual mileage.

HP deals offer more freedom, and is a more cost efficient choice if you know you want to own the car, as you’re paying the amount off more quickly and reducing the interest. Though you don’t actually own the car ‘til your final payment, you get a number of benefits from working towards ownership. Most dealerships won’t impose mileage limits, and you won’t have to fret over any bumps or scratches to the car.

However HP finance really isn’t recommended if you think you could change your mind. Ending your HP agreement in most cases requires you to have paid off at least half of the total amount, including interest! As you’ve terminated the deal before the end of the term, you don’t have any claim over the car and you’ll be left with nothing more than an empty wallet.

Alternatives to both

If you’ve reached the end of the article and concluded that neither are right for you, don’t fret. Check out our article on the top things to think about if you’re wondering, “Should I get a car on finance?”

On top of PCP and HP, you can also finance a car through a personal car loan. If you’re wondering whether to lease or buy a car, specifically whether to lease or finance a car, then personal contract hire (PCH) may be of interest to you.

We’ve rounded up loads of posts pinning different finance/purchase/lease options for you, like PCP vs lease, PCP or bank loan, and PCP or buying outright.

We’ve covered all there is to know about leasing, so you can read up on exactly how car leasing works, how much it costs to lease a car, and how long it takes to lease a car.