What is the difference between PCP and HP?

Hire purchase pays the whole balance off over the term, so the car is yours at the end. A personal contract purchase pays it down to a guaranteed future value instead, which you either pay to keep the car, or walk away from by handing it back.

Why is a PCP payment lower?

Because a large part of the price is not being repaid during the term. That part still accrues interest for the whole agreement, which is why a PCP is usually cheaper a month and dearer overall if you keep the car.

How is the monthly interest rate derived from an APR?

As the twelfth root of one plus the APR, not the APR divided by twelve. The APR is an annual effective rate, so dividing it understates the payment by a few pounds a month, which compounds over 48 of them.

What is not in this calculation?

Fees. A personal contract purchase normally carries an option to purchase fee at the end and some agreements add a documentation fee at the start. Excess mileage and damage charges on a handback are set by the lender and are outside it too.

Running costs

Car finance calculator

Enter the same deposit, term and APR to compare PCP with hire purchase.

What would this agreement cost?

Calculate the monthly payment, total payable and cost of credit from the cash price, deposit, term and APR.

ProductCash price£Deposit£Cash, part exchange and any manufacturer contribution added together.TermmonthsAPR%Guaranteed future value£The optional final payment on a personal contract purchase. Ignored for hire purchase.Annual mileage allowancemiles

£423.88

A month for 48 months

Amount financedCash price less the deposit.: £25,000.00
Total of monthly payments: £20,346.33
Optional final paymentPayable only if you keep the car at the end.: £11,000.00
Total payable if you keep it: £34,346.33
Cost of creditTotal payable less the cash price.: £6,346.33

Calculation details

Assumptions

Monthly rate of 0.7130 per cent, taken as the twelfth root of one plus the APR rather than the APR divided by twelve.
A guaranteed future value of £11,000 is carried to the end of the term. The total below assumes you pay it and keep the car.
The guaranteed future value assumes 10,000 miles a year. Drive more and the figure the lender guarantees falls, so the monthly payment on a real quote rises.

What is not included

Fees are not included. A personal contract purchase normally carries an option to purchase fee at the end, and some agreements add a documentation fee at the start.
This is the arithmetic of an agreement, not an offer. The rate you are quoted depends on your credit file, the deposit and whatever the manufacturer is subsidising that month.
Hand the car back instead and you pay nothing more, provided it is within the mileage allowance and in fair condition. Excess mileage and damage charges are set by the finance company and are outside this calculation.

Is a PCP cheaper than hire purchase?

In the UK, a PCP usually costs less each month than equivalent hire purchase because the guaranteed future value remains as an optional final payment. Keeping the car can cost more overall because interest accrues on that final payment throughout the regulated agreement.

Financial Conduct Authority, CONC App 1.2: total charge for credit rules and the APR calculation (as of 7 September 2026)

£423.88

PCP monthly payment in the comparison

MoneyHelper, Car finance: PCP, hire purchase and personal loans compared (as of 7 September 2026)

£616.87

Hire purchase monthly payment on the same terms

MoneyHelper, Car finance: PCP, hire purchase and personal loans compared (as of 7 September 2026)

£1,736.43

Extra cost of credit on the PCP

Financial Conduct Authority, CONC App 1.2: total charge for credit rules and the APR calculation (as of 7 September 2026)

Checked on 7 September 2026.Financial Conduct Authority, CONC App 1.2: total charge for credit rules and the APR calculation (as of 7 September 2026)

PCP and hire purchase on the same terms

£28,000.00 car, £3,000.00 deposit, 48 months at 8.9 per cent APR
	PCP	Hire purchase
Monthly payment	£423.88	£616.87
Optional final payment	£11,000.00	None
Total payable if you keep the car	£34,346.33	£32,609.90
Cost of credit	£6,346.33	£4,609.90

Both columns are the same car, the same deposit, the same term and the same rate. The only difference is where the balance ends up.

Questions worth asking before you sign

What is the guaranteed future value, and what mileage does it assume? Exceed it and there is a per mile charge on handback.
What is the option to purchase fee, and is it inside the quoted total?
What counts as fair wear and tear, and who inspects the car?
Can you settle early, and what does the settlement figure look like halfway through?
Is there a manufacturer deposit contribution, and is it conditional on using their finance at a higher rate?

Common questions

What is the difference between PCP and HP?: Hire purchase pays the whole balance off over the term, so the car is yours at the end. A personal contract purchase pays it down to a guaranteed future value instead, which you either pay to keep the car, or walk away from by handing it back.
Why is a PCP payment lower?: Because a large part of the price is not being repaid during the term. That part still accrues interest for the whole agreement, which is why a PCP is usually cheaper a month and dearer overall if you keep the car.
How is the monthly interest rate derived from an APR?: As the twelfth root of one plus the APR, not the APR divided by twelve. The APR is an annual effective rate, so dividing it understates the payment by a few pounds a month, which compounds over 48 of them.
What is not in this calculation?: Fees. A personal contract purchase normally carries an option to purchase fee at the end and some agreements add a documentation fee at the start. Excess mileage and damage charges on a handback are set by the lender and are outside it too.