HP vs PCP: Which Car Finance Is Right for You?

Hire Purchase (HP) and Personal Contract Purchase (PCP) are the two most popular ways to finance a used car in the UK. Both spread the cost into monthly payments, but they work in different ways. Here is a simple guide to help you choose.

How Hire Purchase (HP) works

With HP, you usually pay a deposit and then fixed monthly payments over an agreed term, often between two and five years. Once the final payment is made, including any small option-to-purchase fee, the car is yours. There are no mileage limits, so HP suits drivers who want to own the car and keep it for a long time.

How Personal Contract Purchase (PCP) works

PCP also starts with a deposit and monthly payments, but the monthly payments are usually lower. This is because part of the cost is deferred into a larger final payment, often called a balloon payment. At the end of the agreement you normally have three choices:

• Pay the final payment and keep the car.
• Hand the car back and walk away, subject to its condition and mileage.
• Part-exchange it towards your next car.

PCP agreements include an agreed annual mileage. Going over it, or returning the car with damage beyond fair wear and tear, can lead to extra charges.

Quick comparison

• Lower monthly payments: usually PCP.
• Owning the car at the end: HP, or PCP if you pay the final payment.
• High mileage: HP, as there are no mileage limits.
• Changing cars every few years: PCP is often more flexible.

Things to check before you sign

Always compare the APR, the total amount payable and any fees, not just the monthly payment. Make sure the payments fit comfortably within your budget. Under UK law you also have the right to end an HP or PCP agreement early once you have paid half of the total amount payable, known as voluntary termination.

Finance at Hillside Wheeler

We can help you explore finance options on any car in our stock, subject to status. Contact our team or apply for finance online to get started.