PCP vs HP: which car finance route?

Who this guide is for

It’s for anyone choosing between PCP and HP for a car, or trying to understand an agreement they already have.

Personal contract hire (leasing) is a third route. With a lease you never own the car, and the voluntary termination rights below don’t apply.

Quick comparison

From MoneyHelper and the Consumer Credit Act 1974, checked 5 October 2026. Rights apply to regulated HP and conditional sale agreements, which covers most PCPs. Check your own agreement type.

Want to see your own figures? Our PCP calculator and HP calculator let you compare the same car both ways.

PCP in brief

With a PCP, you usually pay a deposit, often at least 10%, then monthly payments for three to five years. At the end there’s the balloon payment, also called the guaranteed minimum future value (GMFV) or guaranteed future value (GFV). You only pay it if you want to keep the car.

Interest is charged on the whole amount borrowed, including the part deferred into the balloon (source: MoneyHelper). Our guide to how PCP balloon payments work covers how the balloon is set, your end-of-deal options and negative equity.

HP in brief

With HP, you pay a deposit, then monthly payments that cover the rest of the car’s price, plus interest. There’s usually no balloon at the end, and you own the car once you’ve made the final payment (source: MoneyHelper).

In law, HP means you hire the car and ownership passes to you once the agreement’s terms are met. That’s why some HP agreements include an option-to-purchase fee with the last payment. MoneyHelper notes that dealers don’t offer HP as often as PCP, so you may need to ask for it.

Which costs more overall?

There’s no general answer. It depends on the car’s price, the deposit, the APR, the term and whether you pay the PCP balloon.

Monthly payments on a PCP are lower because the balloon is deferred. But interest is charged on the balloon part too.

So if you plan to pay the balloon and keep the car, compare the total amount payable for both routes on the same car, deposit and term. Our guide to APR explained covers how the rate works, and APR vs AER explains why the two rates aren’t the same thing.

What to compare on any quote

• the total amount payable
• the APR, and whether it’s the representative APR from an advert or the rate you’ve been offered
• the deposit and the term
• any fees, including an option-to-purchase fee on HP
• the balloon on a PCP, and how you’d pay it if you want to keep the car
• the mileage allowance and excess mileage charge on a PCP

Running both quotes for the same car and term makes the differences easier to see.

Your legal rights on both

Most PCPs are set up as regulated hire purchase or conditional sale agreements. So the same Consumer Credit Act rights usually apply to PCP and HP. Your agreement shows which type you have.

Ending early: voluntary termination

Section 99 lets you end the agreement at any time before the final payment is due, by giving notice. Under section 100, you need to bring your payments up to half the total amount payable, unless the agreement sets a lower figure. You may also owe an amount if you haven’t taken reasonable care of the car.

The car goes back to the lender, and you don’t get money back.

On HP, you’ve often reached half by about halfway through the agreement (source: MoneyHelper). On a PCP, the total includes the balloon, so many people only reach half near the end. Our balloon payments guide works through a PCP example.

Repossession after a third is paid

Under section 90, once you’ve paid a third or more of the total price, the lender usually needs a court order to take the car back if you fall behind.

Paying off early

Under section 94, you can repay a regulated agreement early at any time by giving notice. You may get a rebate on interest, and MoneyHelper notes that admin fees may apply. Ask the lender for a settlement figure.

Mileage and condition

On a PCP, you agree an annual mileage limit at the start. MoneyHelper says it’s usually around 10,000 miles a year. If you hand the car back, it’s checked for mileage and damage, and charges can apply for extra miles or damage beyond fair wear and tear.

If you hand a PCP car back with payments up to date, you don’t pay the balloon. You may still pay those mileage or damage charges.

HP is designed for you to keep the car, so there’s no future value tied to your mileage. Check whether your agreement has any mileage terms anyway.

Two illustrative examples

Taylor wants a family hatchback for about three years and expects to drive around 8,000 miles a year. A PCP quote shows lower monthly payments and a sizeable optional balloon. Taylor checks the mileage allowance and the condition rules, and knows the car won’t be Taylor’s unless the balloon is paid.

Morgan plans to keep a used estate for six years or more and drives higher mileage. An HP quote shows higher monthly payments but no balloon. Morgan tests the budget for insurance, servicing and tyres as well as the finance before deciding.

Illustrative examples only, not quotes or representative examples. If a dealer or lender advertises a rate, check its representative APR and representative example: at least 51% of people accepted through that advert get that APR or lower, so you may be offered a higher rate. Compare the total amount payable on the pre-contract credit information.

Planning for running costs

The finance payment isn’t the only cost. Insurance, tax, servicing, tyres and fuel add up on both routes. Our budget planner and guide to building a budget can help you see the full picture.

A cash buffer for repairs can help too, and our emergency fund guide explains how. If you’re comparing car finance with a personal loan, our loan repayment calculator shows how loan costs work.

If you’re struggling with payments

If you’re struggling with car finance payments, speak to your lender early, before you miss a payment. Payment holidays are recorded on your credit file. Repeated missed payments can lead to default notices, repossession and court action.

You can get free, confidential debt advice from MoneyHelper, StepChange, National Debtline or Citizens Advice. Our guide on whether to pay off debt or save explains priority debts, and our credit score basics guide covers your credit file.

Car finance compensation scheme: as of 5 October 2026

The FCA’s compensation scheme covers some car finance taken out between 6 April 2007 and 1 November 2024, including HP agreements such as PCP, where customers weren’t told about certain commission arrangements. The scheme is partially suspended while a legal challenge is heard, and the FCA expects payments to begin in 2027 if it’s upheld and not appealed.

You don’t need a claims firm to complain, and you can complain to your lender for free. Our balloon payments guide has the fuller status, and the FCA’s car finance complaints page has the latest position.

The catch

Key takeaways

• PCP: lower monthly payments, an optional balloon, and mileage and condition terms.
• HP: higher monthly payments, and you own the car after the final payment.
• Compare the total amount payable on the same car, deposit and term.
• Most PCP and HP agreements carry the half rule for ending early and court protection once a third or more is paid.
• You don’t need a claims firm to complain about car finance commission.

Related reading

Related guides

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FAQ

Do I own the car during a PCP or HP agreement?

No. On both, the lender owns the car until the agreement ends. On a PCP, you own it only if you pay the balloon, and on HP, you own it after the final payment and any option-to-purchase fee.

Which costs more overall, PCP or HP?

It depends on the price, deposit, APR, term and whether you pay the balloon. Interest on a PCP is charged on the balloon part too, so compare the total amount payable for both on the same car and term.

Is there a big final payment at the end of HP?

Not usually. HP payments cover the rest of the car’s price over the term, so there’s normally no large final payment. Some agreements add a small option-to-purchase fee at the end.

Can I pay off a PCP or HP deal early?

Yes. Under the Consumer Credit Act, you can repay a regulated agreement early at any time. Ask the lender for a settlement figure, which may include an interest rebate and an admin fee.

Is handing the car back early an option on HP?

Possibly. Most HP agreements and PCPs let you end early under voluntary termination. You’ll need to bring your payments up to half the total amount payable, or pay the difference, and you may owe more if you haven’t taken reasonable care of the car.

Is car finance regulated?

Yes. PCP and HP are usually regulated consumer credit agreements, which gives you the rights above. Read the pre-contract credit information before you sign.