PCP vs HP Car Finance

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Rates from 28.5% APR
39.7% Representative APR -
Subject to status and affordability

PCP vs HP – what is the difference?

When deciding on how to purchase a car, sometimes the biggest decision may be how you pay for the car. There are a number of viable options to suit your circumstances. From buying the car outright to getting a car loan or personal loan, but it’s car finance that is found to be the most popular choice with consumers today.

Car finance is more popular than ever as consumers are opting to save their cash and finance their car. Finance means you can pay for your car on a monthly basis rather than spending your savings on such a large investment.

However, there are many methods of payment and we’ve produced a comparison to the most popular types which are Hire Purchase (HP) and Personal Contract Purchase (PCP).

We wanted to make you aware of the difference between these two forms of popular finance so you can make a more informed decision as to which is best for you.

There are several major differences between a personal contract purchase (PCP) and a hire purchase (HP) agreement, so it’s worth knowing a bit of extra detail about exactly what each option involves to see if it would be suitable option.


Representative example – Total amount of credit £8000, annual interest rate 20% (fixed), charge for credit £6711.44 (£6406.44 interest, £295 admin fee and £10 option to purchase fee), total amount payable £14711.44. Loan term of 48 monthly instalments, 47 payments of £306.28 and 1 final instalment of £316.28. 39.7% Representative APR – Subject to status and affordability


Overview of Hire Purchase (HP) and Personal Contract Purchase (PCP)

Both PCP and HP are arranged around an initial deposit, followed by a string of monthly payments. In both cases, these payments vary in amount depending on the cost of the car, its age, the length of the contract and the size of the initial deposit.

With PCP, the monthly payments essentially equate to the amount of value the car has lost while you’ve been driving it – the difference between the initial price and its predicted value at the end of the contract – whereas with Hire Purchase, the monthly payments cover the entire cost of the car and at the end you are the legal owner with nothing outstanding to pay.

Also hire purchase doesn’t always require a deposit either. Here at Go Car Credit we finance cars without deposits making it a suitable option if you would rather keep the funds in your pocket.


Difference between PCP and HP Monthly Payments

When comparing the same finance amount for both HP and PCP you will notice over the same period with the same deposit, the monthly price will noticeably differ between PCP and HP. The payment on the PCP finance will be distinctively cheaper than the HP finance payment.

This is because of how these payments are worked out. With HP, you pay a monthly payment until you own the car at the end of the agreement, therefore you’re paying for the full vehicle’s value.

However, with PCP, a large amount of the car’s value is tied up in what’s called the GMFV (Guaranteed Minimum Future Value), an optional payment that is paid at the end to own the car.

Because of this, the monthly payments are only paying the for the difference between the total price of the car and this optional final payment that is required with PCP. For this reason, many people choose PCP over HP so they can enjoy cheaper monthly payments over the course of the finance agreement.



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Limitations of PCP and HP

It can be said that PCP finance has the biggest possible disadvantages compared with HP finance.

At the start of the contract, you will need to agree to a mileage limit that must be kept to or you will incur excess mileage charges at the end of the contract.

A mileage limit is set because this is a key factor in working out the car’s value at the end of the agreement – the more miles the car does, the lower the value will be and the higher the monthly payment cost.

Because of this restriction, you will need to be fairly confident about the miles you think you will do during the contract terms. Being extra cautious and having more miles on the contract than you’ll actually do only makes the monthly payments more expensive so may not be the best thing to do.

You will also need to be wary about damaging the car during a PCP contract. Any damage will come at a cost at the end of the agreement or you will need to get any damaged repaired before the end of the agreement to ensure you don’t incur any additional charges. With HP, however, the lender won’t take an interest as much in such factors, or mileage for that matter, as you are paying to own the car at the end of the agreement.

With regards to hire purchase finance, the only real limitation is that you can only pay to own the car at the end of the contract there are no other options available. Whereas PCP allows you a handful of options at the end of your agreement.


End of Contract

If you like to keep things simple in your finance agreements, then HP is probably the one for you especially if you can afford to pay a bit more each month.

As previously mentioned, you complete your monthly payments on an HP agreement until you’ve paid for the full cost of the car and the vehicle is yours. Once you have completed all payments the car is now legally yours. You are then free to do as you please with the car, keep it, sell it privately or use it as a part exchange deposit on another car.

It is slightly more complex with PCP as you have a few more options. This is where the flexibility of PCP comes into its own compared to HP and why people may choose PCP over HP.

Three key options await you upon the end of a PCP finance agreement, which are:

  • Hand the car back and walk away without paying the Guaranteed Minimum Future Value.
  • Pay the Guaranteed Minimum Future Value to make the car yours.
  • Use any equity in the car to part exchange it for another car with the dealership.

Benefits of HP

  • Available on most ages of car, new and used so you have a lot of choice when looking for that perfect car.
  • Flexible deposit; as little as zero in many cases. Here at Go Car Credit we offer zero deposit hire purchase finance.
  • Repayments can be spread over a term to suit you – Our maximum loan term is 60 months.
  • No mileage penalties, meaning you don’t have to think about limiting your mileage during the agreement.
  • You pay less interest overall than with PCP, as you’re paying off the balance financed faster.
  • The car is paid off by the end of the term and you take ownership, at which point you can keep it or sell it.

Benefits of PCP

  • Lower monthly repayments than hire purchase.
  • You don’t need to worry about the future trade-in or resale value of the car, as the lender guarantees your car will be worth a minimum sum at the end of the deal.
  • Flexibility. You’ve several options at the end of it – you can even buy the car if you want to.
  • PCP may let you buy a more expensive car than you might otherwise be able to afford but with monthly payments to suit your budget.
  • As PCP deals are usually only offered on new or nearly new cars, you don’t have to worry about an old car that’s likely to need money spent on costly repairs.

Here at Go Car Credit we only provide hire purchase car finance but we wanted to provide information on both hire purchase and personal contract purchase so you can be more informed on the options available to you. We would always suggest that you do your research when looking for finance products. There are many resources available online so you can compare options fairly.


How our finance works

Apply – Apply for our car finance by submitting an application. This will take you less than 2 minutes.

Decision – Once we have all the information we require, we will send your application to our underwriting team who will review all the details and come back to us very quickly with a decision for approval.

Car – Once we have approved you for finance, we can provide a list of dealers we work with within your area. You get to work on choosing your perfect car.

Sign – Once you have chosen the perfect car you will sign all of the documentation online and then you can drive away your new car.


Why Choose Go Car Credit

We understand that trying to choose the best car finance provider is a tricky task as there is so much information out there. We have put together a few reasons why we think we would be the perfect partner:

  • Trusted – Our customers have a lot of good things to say about us. We are rated ‘excellent’ on independent review site Trustpilot.
  • Transparent – We ensure that we are upfront about our interest rate to ensure our customers are comfortable with our product. We do not upsell or cross sell any additional products to our customers.
  • Simple – We understand that the finance process can be daunting, and we pride ourselves on making the process as simple and stress free as possible.
  • Specialists – We specialise in helping people secure finance who may have experienced bad credit in the past. We decided to develop Go Car Credit as we understand anyone could have problems getting credit via traditional banks.
  • Responsible – The primary focus is ethical and responsible lending and treating customers fairly, which forms our core values here at Go Car Credit.

If you have any questions regarding our car finance process, please call us on 01925 696 373 as we would be happy to answer any of your queries. Alternatively, if you feel we have answered all you need to know apply today, it takes less than 2 minutes.

Apply Now

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