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

Chloe Murphy 4 minutes Published: 22/07/2021

Deciding how to finance your car isn’t always an easy decision. Just choosing whether you want to buy a new car or hire a car can feel daunting. 

But getting the right type of car finance is important for more than just a great driving experience. Making sure you have the finance to fit your needs ensures you get the best deal possible on the car you’re looking at, and that you don’t end up overpaying for a car you could’ve got cheaper elsewhere.

If you’re hoping to save time and money on your car finance, stick around. In this article we’re looking at all the pros and cons of three of the best ways to finance a car - Personal Contract Purchase (PCP), Hire Purchase (HP), and a Personal Loan. 

What is PCP?

Popular for its flexibility, Personal Contract Purchase works by paying an initial deposit, then monthly payments over 3-5 years.

With PCP your installments are covering the car’s depreciation over the duration of your contract, then you can choose to pay a final balloon payment to purchase the car. If you’d rather not buy, you can just return the car to the dealership or finance company, or get a part exchange on a new car.

Read up more on PCP in our “what is PCP finance?” guide.

What is HP?

Financing with a Car Hire Purchase (HP) agreement is relatively easy. You’ll have to pay an initial deposit, but then you cover the remaining cost of the car through monthly installments over a 2-5 year contract. 

Though you still need to keep the car insured and maintained, there’s no restrictions on how many miles you do. When it gets to the end of the term, you own the car and it’s yours to do with as you like.

How does a bank loan work?

A personal car loan couldn’t be more simple, as it essentially works the same as any other loan. We’ve done a full guide on how to get a car loan, so we’ll be brief here.

You apply to the bank or finance provider for the amount you need to cover the car (plus any interest), use it to buy your car outright, then pay the sum back over a term of up to 7 years. 

You may need a stronger credit rating to get the best rates on a personal loan, but you can easily check your score through sites like Experian and Equifax.

How do they compare?

Even if you’ve read through all the details, you might still struggle to see how they all stack up against each other, so let’s take a look at how the finance types compare.

You’re on the right track if you’re hoping to buy and considering PCP, HP or a personal loan, as each option allows you to become the owner of the car. 

However, when you become the owner will differ based on the finance. Though you’ll become the owner right away with a car loan, you won’t legally own your car until the end of a PCP or HP deal. As the final purchase is optional with PCP, you also have to stick to an annual mileage limit.

Using a bank loan offers the most flexibility in payment plans, with the longest repayment period of 7 years, whereas PCP and HP average a max of 5 years. A personal loan is a great option if you really need the additional time, but it’s worth considering how much extra you’ll end up paying in interest. 

Option to ownMileage LimitDepositAverage term
Loan1-7 years
PCP3-5 years
HP2-5 years

Which is right for me?

It really does pay off to do your research when deciding on the best way to finance a car, and you’ll reap the benefits of a deal suited to your budget and needs. But if you’ve read through all the details and still need a helping hand, here’s our recommendations.

Go for PCP if you:

  • Want the flexibility of choosing whether to keep or return the car.
  • Look for low monthly payments .

Go for HP if you:

  • Are confident that you want to own your car at the end of the term.
  • Can afford the higher monthly payments.

Go for a personal loan if you:

  • Want the freedom to purchase any type of car from anywhere. 
  • Are looking for a longer repayment term.

Alternatives

If you’ve realised that owning the car isn’t for you, you’re not alone. Personal Contract Hire (PCH), also known as leasing, is a rising alternative to buying a car. 

You just have to pay an initial rental, then you’ll have monthly payments until the end of the agreement. There’s a lot of advantages to leasing, just one being that the cost to lease the car is based on the car’s estimated depreciation. 

This means you get low monthly installments, and the opportunity to drive a car that might normally have been out of budget. When your contract is up, all you have to do is return your car in good condition and within the agreed mileage. To see how it compares to finance, check out our leasing vs finance, PCP vs lease, hire purchase vs lease, and PCP vs HP vs lease posts.

At Car Lease Fetcher we compare the best leasing deals around, so if you think it could be for you, head to our personal car lease deals or business car lease deals page to get started.

If PCP or HP is more your bag, see PCP vs HP, PCP vs HP vs lease, PCP or bank loan, PCP or buying outright and hire purchase vs lease purchase for more avenues to explore.