Calculate your monthly HP or PCP payment and total cost of credit before you sign.
| Car Price | — |
| Deposit | — |
| Amount Financed | — |
| APR | — |
| Term | — |
| Total Cost of Credit | — |
Hire Purchase (HP) and Personal Contract Purchase (PCP) are the two most popular ways to finance a car in the UK. Both spread the cost with monthly payments, but they work quite differently.
With HP, you borrow the full car price minus your deposit and pay it off in equal monthly instalments over the agreed term. At the end you automatically own the car. There is no balloon payment. HP is straightforward — your payments are higher than PCP but you build equity from day one and the maths is simple.
PCP monthly payments are lower because you are not paying off the full car. Instead, the lender sets a Guaranteed Minimum Future Value (GMFV) — also called the balloon — which represents the car's predicted residual value at the end of the deal. You finance the difference between the car price (minus deposit) and this balloon, plus interest on the whole amount. At the end you have three options: pay the balloon to own the car, hand it back, or use any equity towards a new deal.
HP typically costs less in total interest because the loan amount falls faster (you pay capital sooner). PCP is cheaper month to month but often more expensive in total if you choose to buy the car at the end. If you plan to hand the car back or part-exchange, PCP can be a cost-effective way to drive a newer car.
The Annual Percentage Rate (APR) is the true cost of borrowing, including any fees. Adverts show a "representative APR" but not all applicants receive this rate — your actual rate depends on your credit score. Always compare APR across deals rather than just monthly payment, as a lower monthly payment over a longer term can cost significantly more overall.