HP vs PCP: what's the difference and which one should you choose?
Hire purchase and PCP are the two most common ways to finance a car, and on the surface they can look very similar: both involve a deposit (optional with some lenders), fixed monthly payments, and a finance company that owns the car until the agreement ends. The differences between them matter most at the end of the agreement, and understanding those differences upfront makes it much easier to choose the right one for your situation.
| Feature | Hire Purchase (HP) | PCP |
| Monthly payments | Higher, cover full car value | Lower, cover value minus balloon |
| Balloon payment at end? | No | Yes, if you want to keep the car |
| Own the car at the end? | Yes, automatically | Only if you pay the balloon |
| Mileage limits? | No | Yes, with excess charges |
| Best if you want to | Own the car outright with no final decision | Keep payments low and decide later |
| Accessible with poor credit? | Generally yes | Generally harder |
| Voluntary termination right? | Yes, after 50% repaid | Yes, after 50% repaid |
The fundamental difference is what your monthly payments are actually paying for. With hire purchase, every payment goes toward the cost of the car itself, so once you have made all the payments and a small option to purchase fee, the car is yours. There is no further decision to make and no large final payment.
With PCP, your monthly payments cover the difference between the car's value now and its predicted value at the end of the agreement, known as the balloon payment. That balloon payment is left outstanding. At the end of a PCP agreement you have to choose: pay the balloon and keep the car, hand the car back, or part-exchange it.
For a deeper explanation of how PCP itself works, including the balloon payment and what happens at the end, see our guide: What is PCP? How does Personal Contract Purchase work?. For the equivalent on HP, see: How does hire purchase (HP) car finance work?.
PCP almost always has lower monthly payments than HP for the same car, deposit, and term, because part of the car's value is deferred to the balloon payment rather than being paid off month by month. This is the main reason PCP is so popular, particularly for newer or more expensive cars where the difference in monthly cost can be significant.
The trade-off is that the total amount you pay over the life of a PCP agreement, including the balloon payment if you choose to pay it, is not necessarily lower than HP. You are deferring cost, not necessarily reducing it. If you compare the total amount payable on both options for the same car, the gap is often smaller than the difference in monthly payments suggests.
Use our car finance calculator to see what an HP agreement would look like for a given loan amount and term.
If owning the car outright at the end of the agreement is your goal, HP is the more straightforward route. Every payment builds toward ownership, and the final option to purchase fee is small and known from the outset. There is no decision to make at the end and no risk of a large unexpected payment.
With PCP, ownership is conditional on paying the balloon payment, which can be a significant sum, often several thousand pounds. If you reach the end of a PCP agreement and cannot or do not want to pay the balloon, you do not own the car, regardless of how many payments you have made.
PCP tends to suit people who like to change their car every two to four years. At the end of the agreement, if the car is worth more than the balloon payment, that equity can be used as a deposit on a new PCP agreement, effectively rolling you into a new car without needing to find a large lump sum.
HP is less suited to frequent changes, because you do not own the car until the very end of the agreement, and selling or part-exchanging before then requires settling the outstanding finance, which may leave you in negative equity depending on how far into the agreement you are.
If you are part-exchanging a car that is still on finance, our guide on how to part exchange a car on finance covers how settlement and equity work in that situation.
Hire purchase is generally more accessible to applicants with poor credit, CCJs, defaults. Because the full value of the car is repaid through the agreement, the lender is not also taking on risk around the car's future value, which is an additional factor PCP lenders have to price in.
AutoMoney Trust offers hire purchase finance from £4,000 to £25,000 over 36 to 84 months with no deposit required, and considers applications from people with poor credit. For more, see our guide on car finance with a CCJ.
Yes. If you are partway through a PCP agreement and decide HP would suit you better going forward, or you have reached the end of a PCP agreement and want to keep the car without paying the balloon outright, refinancing the balloon payment as a new HP agreement is a common route.
Our guide on refinancing a PCP balloon payment covers exactly how this works, including how it is structured as a new HP agreement and what to consider before going ahead.
There is no universally right answer between HP and PCP. If you want the lowest possible monthly payment, are comfortable with a decision point at the end of the agreement, and like to change your car regularly, PCP is built for that. If you want certainty, want to own the car outright with no final payment, drive high mileage, or have a less than perfect credit history, HP is usually the more straightforward fit.
AutoMoney Trust specialises in hire purchase finance, available from £4,000 to £25,000 over 36 to 84 months with no deposit required. The initial check is a soft search that will not affect your credit file. Check your eligibility on our apply for car finance page.
Getting started with AutoMoney Trust is straightforward, you can[apply online today using our short application form and receive a decision in minutes. Before applying, it helps to understand your options, check what documents you'll need, and use our finance calculator to estimate monthly payments based on the amount you want to borrow. AutoMoney Trust specialises in used car Hire Purchase finance from £4,000 to £25,000, with fixed monthly payments over 24 to 84 months. Applications are subject to status and affordability. Once approved, you could be driving your new car the same day.
