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 rate worked out 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

One product pays the car off. The other pays part of it off and parks the rest at the end. That single difference explains every number below.

What would this agreement cost?

Monthly payment, total payable and the cost of credit, from the same annuity arithmetic a lender uses.

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

How this was worked out

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.

Caveats

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.

£423.88

PCP, a month, on the example

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

£616.87

Hire purchase, a month, 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)

Is a PCP cheaper than hire purchase?

A month, yes. Overall, only if you hand the car back. The guaranteed future value is not being repaid during the term but it is accruing interest for all of it, so keeping the car at the end costs more in total than the equivalent hire purchase would have.

The same car on both products

£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 rate worked out 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.