Hire purchase (HP) and personal contract purchase (PCP) both let you use a car while making monthly payments. The main difference is how much you leave to pay at the end.
HP may suit plans to keep the car. PCP offers a choice about ownership later. Either way, check the full cost and what happens if your plans change.
What is the difference between HP and PCP?
With HP, you usually pay a deposit, then monthly payments covering the remaining cost plus interest. Ownership passes after all required payments, including any purchase fee.
With PCP, part of the car's cost is left until the end. This is the optional final payment, often called the balloon payment.
PCP monthly payments are often lower than HP payments for the same car, deposit and term. That does not mean the total cost of buying the car is lower.
Read the HP guide and PCP guide for each agreement's main features.
Who owns the car with HP or PCP?
The finance company owns the car during either agreement. Being named as the registered keeper does not make you the legal owner.
With HP, you own it after completing the required payments. With PCP, you must also pay the optional final payment and any purchase fee to own it.
You cannot sell the car while the finance company owns it. Ask for a settlement figure first if you want to clear the finance and sell.
Does HP or PCP cost less overall?
There is no single answer. The car's price, deposit, interest rate, agreement length and fees all matter. Terms vary by lender.
Look at the total amount payable to own the car. For PCP, include the optional final payment. Looking only at the monthly payment can hide a large difference.
PCP interest is generally charged on the outstanding balance, including the amount left for the final payment. That deferred amount is not interest free.
- Check the deposit and every required payment.
- Check the APR, which helps show borrowing costs.
- Check fees and the cost of taking ownership.
- Allow for insurance, fuel, servicing, tax and repairs.
Use the calculator to explore the numbers. Any quote comes from a car finance specialist. Calculator results are estimates.
Do HP and PCP have mileage limits?
PCP normally has an agreed mileage allowance. If you return the car at the planned end, exceeding it can lead to extra charges.
Choose an allowance that reflects work, weekends and longer trips. Ask what happens if your mileage changes during the agreement.
Standard HP usually has no mileage limit. Check the contract, as terms vary. Both types require you to look after the car.
For PCP returns, read the condition rules too. Damage beyond fair wear and tear can lead to charges.
What happens at the end of PCP?
There are usually three routes, subject to your agreement:
- Pay the optional final payment and any purchase fee to own the car.
- Return the car, with possible mileage or condition charges.
- Explore changing the car, settling the existing finance first.
If the car is worth more than the settlement figure, the difference may help towards another car. Do not rely on having that money.
Borrowing to cover the final payment means another application, further interest and fresh checks. A lender may decline.
Which suits me if I want to keep the car?
HP offers a clear route to ownership without a large optional final payment. Check that its monthly payments fit your budget.
PCP can still lead to ownership, but you need a realistic plan for the final payment. Add that amount to your decision from the start.
If you want ownership when you buy, an unsecured personal loan works differently. See the car loans guide.
Leasing, also called personal contract hire (PCH), is another option. You hire the car and normally have no option to buy it.
Can I end HP or PCP early?
For agreements covered by the Consumer Credit Act 1974, you have early settlement rights. Ask the lender for a written settlement figure and its expiry date.
Voluntary termination is a separate right under that Act for eligible HP and PCP agreements. You return the car rather than pay to own it.
You can end the agreement this way with liability normally limited to half the total amount payable, provided you have taken reasonable care of the car.
If you have paid less, you may need to pay the difference. Arrears or damage can also leave money to pay. PCP's final payment counts towards the halfway figure.
Half the total amount payable is not half the agreement's length. Read ending car finance early before acting.
Can I cancel within 14 days?
Where the Consumer Credit Act's withdrawal right applies, you have 14 days to withdraw from the credit agreement. Check your paperwork for when that period starts.
Withdrawing from credit does not automatically cancel buying the car. You must repay the credit and accrued interest within 30 days of giving notice.
Contact the lender promptly. Simply returning the car to the seller does not settle what you owe.
What happens if I miss payments?
The car may be taken back if you do not keep up payments. Missed payments affect your credit record and can make future borrowing harder.
Under eligible HP and PCP agreements, once a third of the total amount payable has been paid, the lender generally needs a court order to take the car without your consent.
That protection does not cancel the debt. Tell the lender as soon as payments become difficult. Ask StepChange for free debt help.
Who is responsible if the car is faulty?
With HP or PCP, the finance company is responsible for the car's quality under the Consumer Rights Act 2015. The car must be of satisfactory quality, fit for purpose and as described.
Age, mileage and price affect what quality is reasonable. Report faults promptly and keep records. Do not stop payments without discussing the position with the lender.
Complain to the finance company first. If unresolved, the Financial Ombudsman Service may be able to help.
How do I ask about my options?
Get a quote by filling in the form. A car finance specialist then gets in touch, explains the options and gives any quote and any advice.
The lender decides any application and provides any finance. Ask what credit searches will happen before proceeding. A hard search leaves a record and can affect your credit score.
Updated 7 November 2026
