HP vs PCP: Which is right for me?

Choosing your new car can be fun, but choosing how you pay for it? Not so much. Personal Contract Purchase (PCP) and Hire Purchase (HP) finance are two of the most popular ways to spread the cost of buying a new or used car. 

They both involve paying an initial deposit, followed by fixed monthly payments for an agreed period of time. PCP is more flexible if you feel like switching things up every few years, whereas HP lends itself more to drivers who are happy to commit to a car for the longer term. 

We’ll take you through the similarities and differences, so you can figure out the best option to help you get on the road.

What is PCP finance?

Personal Contract Purchase finance (PCP for short) is a way of spreading the cost of buying a car over a set period - typically between two and four years.

You’ll usually put down an initial deposit, then make fixed monthly payments until the end of the loan term. When you reach the end of the term, you can choose whether to buy the car by paying a one-off balloon payment, or hand the car back and walk away. You can also use any positive equity you’ve built up as a deposit in a new finance agreement. 

With PCP finance agreements, you usually have to agree to an annual mileage limit, and you’ll have to pay a fee if you go over this.

Pros

• Your monthly payments can be lower than other types of finance
• You have options at the end of your agreement
• You can change your car every few years, so you get the chance to drive newer cars 

Cons

• You don’t own the car, unless you pay the balloon payment at the end of the term
• You’ll have to pay extra charges if you go over the annual mileage limit, or if the car is damaged beyond standard wear and tear
• You could end up paying more overall if you decide to buy the car at the end of the term 

What is HP finance?

HP finance (Hire Purchase finance, to give it its full title) also lets you spread the cost of buying a car, usually over one to six years.

Like with PCP, you pay an initial deposit and then make fixed monthly payments until the end of the loan term. When you get to the end of an HP agreement, you can pay a small Option to Purchase fee (a one-off payment in the region of £100 - £200, although at Carmoola it’s just £1), and then you’re the legal owner of the car. 

Unlike PCP, HP doesn’t give you the option to trade the car in at the end of the term, and you also can’t hand it back and walk away without making all the payments. Plus, HP doesn’t come with the mileage limits you’d get with PCP - so you can take as many long road trips as you like.

Pros

• You’ll become the car’s legal owner at the end of the agreement
• No mileage restrictions
• Ideal if you want to keep the car for a long time

Cons

• Monthly payments can be higher than other types of car finance like PCP
• You don’t have as many options if your circumstances change

What are the differences between HP and PCP?

	Hire Purchase (HP)	Personal Contract Purchase (PCP)
No deposit required
Car is yours at the end of the agreement		Optional
Agreement length	1 to 6 years	1 to 5 years
Fixed monthly payments
No (final) balloon payment
No excess mileage charges
Secured against the vehicle
Available on Carmoola

This table outlines key features of typical PCP and HP agreements and may not represent all agreements available. Speak to the lender to understand specific details of the agreements they provide.

How to work out if HP or PCP is best for you

There’s no right or wrong choice when deciding between HP and PCP - the best option for you will depend on your personal preferences and individual circumstances. To help you choose, ask yourself these questions:

What's your financial situation?

HP could work for you if your credit score isn’t quite where you’d like it to be, or if you’ve missed payments in the past. If that’s not you, and if you like the sound of lower monthly repayments, then PCP could be a good option.

How do you plan to use the car?

Do you drive a lot of long distances? Are you happy to keep the same car for several years? HP might be the way forward for you. On the other hand, if you tend to drive a similar number of miles each year, and you love driving newer models, you might be better off with PCP. 

How much flexibility do you need?

PCP might suit you better if you want to choose whether to own the car or not, and if you want the option of changing your car every few years. If this isn’t that important to you, then HP might be a better fit.