How this calculator works
This calculator compares two of the most common ways to finance a car purchase in the UK: Hire Purchase (HP), where your monthly payments cover the car's full value, and Personal Contract Purchase (PCP), where your monthly payments only cover the car's expected depreciation, with a large "balloon payment" due at the end if you choose to keep the vehicle.
The theory behind Hire Purchase
With HP, the finance company effectively spreads the full cost of the car (minus your deposit) across fixed monthly instalments over the agreed term, using standard amortising loan mathematics — the same underlying approach as a personal loan. Once every instalment has been paid, ownership transfers to you automatically. Because you're financing the entire value of the car, HP monthly payments are typically higher than PCP for the same vehicle, deposit and term.
The theory behind PCP
PCP is structured differently: rather than financing the car's full value, it finances only the difference between the car's price and its predicted value at the end of the agreement (called the Guaranteed Minimum Future Value, or GMFV) — essentially, the expected depreciation over the finance term. Because you're only financing the depreciation rather than the full price, monthly payments are typically lower than HP for the same car and term. The GMFV becomes the "balloon payment" due if you decide to keep the car at the end.
End-of-agreement choices with PCP
At the end of a PCP agreement, you typically have three options: pay the balloon payment and keep the car outright (effectively financing the remaining value at that point, often via a new loan); hand the car back with nothing further to pay, provided it's within the agreed condition and mileage limits; or use any equity in the car (if its actual value exceeds the GMFV) as a deposit toward a new PCP agreement on a different vehicle.
Why total cost often favours HP if you're keeping the car
If your genuine intention is to keep the car for the long term, HP (or an outright personal loan) is often cheaper overall than PCP, because with PCP you eventually pay both the monthly depreciation-based instalments and the balloon payment to actually own the car — combined, this can equal or exceed financing the full price another way, especially once PCP's often slightly higher APR (reflecting its different risk structure for the lender) is factored in.
Why PCP can still make sense for some buyers
PCP is specifically designed for buyers who like changing cars every few years rather than keeping one long-term. For this use case, PCP's lower monthly payments and structured end-of-term options (hand back or trade in, without needing to sell the car privately) offer genuine convenience and flexibility that HP doesn't provide in the same way.
Mileage and condition — a real cost that's easy to overlook
PCP (and many HP agreements) include mileage limits and condition expectations, with charges applied for exceeding the agreed mileage or returning the car in worse-than-expected condition. If you're a high-mileage driver, it's worth factoring potential excess mileage charges into your true comparison, since this cost isn't reflected in the standard monthly payment figures this calculator produces.
For more on this, see our guide on Loan Repayment Estimator.
The bottom line
Use this calculator to compare the monthly payment and total cost of HP against PCP for the same car, deposit and term. If you intend to own the car outright long-term, HP (or a personal loan) is usually the more cost-effective route; if you value lower monthly payments and enjoy the flexibility of regularly changing vehicles, PCP's structure may suit your circumstances better despite the typically higher total cost of ownership. See our full guide on financing a car: personal loan vs PCP vs HP for the fuller decision framework, including personal loans as a third option.