1. What is PCP finance?

PCP is a finance agreement where part of the vehicle value is deferred into a final optional payment. This usually results in lower monthly payments than HP, but you may have an optional final payment if you want to own the car.

2. What is HP finance?

Hire Purchase spreads the full cost of the vehicle across monthly payments with ownership at the end. Once all required payments have been made, including any applicable final option-to-purchase fee, you become the owner of the vehicle.

3. Why are PCP monthly payments lower?

PCP payments can be lower because a portion of the vehicle's value is deferred to the end of the agreement as a final optional payment (sometimes called a balloon payment: see question 13 below). With HP, the financed balance is generally repaid through the monthly payments over the agreed term.

4. Should I choose PCP or HP?

The right option depends on your budget, expected mileage, how long you want to keep the vehicle and whether you want to own it at the end. PCP can provide lower monthly payments, while HP may be simpler if your intention is to own the vehicle after completing the agreement.

When it's time to get a new car in the UK, you've got more options than just saving up and buying outright. This expert guide compares PCP and Hire Purchase to help you make the right choice for your situation.

5. Which is Cheaper: PCP or Hire Purchase?

The honest answer is: it depends on how you drive and what you do at the end. Let's break down real scenarios with actual numbers. You can read more about it in our comprehensive guide.

6. How does this car finance calculator work?

Our car finance calculator uses information such as the vehicle price, deposit, part exchange, APR, finance term and applicable fees to estimate the amount financed, monthly payment and total amount payable. PCP calculations can also include a final balloon payment or Guaranteed Future Value.

7. Can I use this as Hire Purchase calculator?

Yes. Select Hire Purchase (HP) as the finance type and enter the vehicle price, deposit, part exchange, APR, term and applicable fees. The calculator will estimate your monthly HP payment and overall finance costs.

8. Can I use this calculator for PCP?

Yes. Select Personal Contract Purchase (PCP) and enter the relevant vehicle and finance details. You can also enter the Guaranteed Future Value and annual mileage to estimate the PCP payment and final optional payment.

9. What is APR on car finance?

APR, or Annual Percentage Rate, represents the cost of borrowing expressed as an annual percentage. It is useful when comparing finance offers because it takes interest and certain compulsory charges into account.

10. Does a higher deposit reduce my monthly car finance payment?

Usually, yes. A larger deposit means you borrow less money, which can reduce both the monthly payment and the amount of interest paid. However, the exact effect depends on the finance agreement and other charges.

11. Does part exchange reduce the amount I need to finance?

Usually, yes. The equity available from a part-exchange vehicle can contribute towards the purchase price. If the vehicle has outstanding finance, the existing settlement amount needs to be taken into account when calculating the available equity.

12. What happens if I still owe money on my part-exchange vehicle?

The outstanding finance normally needs to be settled as part of the transaction. If the vehicle is worth more than the settlement figure, you may have positive equity that can contribute towards your new finance. If it is worth less, there may be negative equity that needs to be dealt with separately.

13. What is a balloon payment on PCP?

A balloon payment is the large final payment associated with many PCP agreements. It represents the deferred portion of the vehicle's value. With PCP, this payment is generally optional: you may be able to pay it to own the vehicle, return the vehicle subject to the agreement's conditions, or potentially refinance it.

14. What is Guaranteed Future Value (GFV)?

Guaranteed Future Value (GFV) is an estimated future value assigned to the vehicle at the end of a PCP agreement, subject to the finance agreement's terms. It is used to calculate how much of the vehicle's value is deferred until the end of the agreement.

15. Does annual mileage affect PCP payments?

Yes. Going over the annual mileage you agree (usually called the excess mileage) to can affect the expected future value of the vehicle and therefore the PCP calculation. Higher agreed mileage can result in a different Guaranteed Future Value and monthly payment. You can check your costs using our mileage excess calculator.