The Setup: A Real £18,000 Car
Imagine you're buying a Ford Focus (or similar mid-range car) that costs £18,000 new. You want to finance it over 3 years. Your credit is decent (so you get a reasonable interest rate). Let's compare what each option costs.
💡 Important note
"Cheaper" doesn't mean the same thing for both deals, because they end differently. One leaves you with a car. The other leaves you with nothing but memories and (hopefully) no excess mileage bills.
Scenario A: PCP Deal
Car price: £18,000
Estimated residual value (what it'll be worth in 3 years): £10,000
Depreciation you'll pay for: £8,000
Mileage allowance: 12,000 miles per year (36,000 total)
Cost breakdown:
| Item | Cost |
|---|---|
| Deposit (3 months free) | £0 |
| Monthly payment (£8,000 depreciation + interest over 36 months) | £280 × 36 months = £10,080 |
| Gap insurance (protects you if car is written off) | ~£150 |
| Excess mileage (if you drive 38,000 miles instead of 36,000 at 10p/mile) | £200 |
| Wear and tear repairs (few stone chips, one alloy wheel) | £400 |
| Total cost over 3 years | £10,830 |
| You own afterwards? | No |
Scenario B: Hire Purchase Deal
Car price: £18,000
Deposit: £3,000 (15%)
Amount financed: £15,000
Interest rate: 7% (reasonable for decent credit)
Term: 36 months
Estimated monthly payment: ~£455
Cost breakdown:
| Item | Cost |
|---|---|
| Deposit | £3,000 |
| Monthly payment (£15,000 + interest over 36 months) | £455 × 36 months = £16,380 |
| Warranty (if you buy extended beyond 3 years) | £0 (standard manufacturer covers 3 years) |
| Repairs after year 3 (none in this example—you haven't kept it 4+ years) | £0 |
| Total cash spent over 3 years | £19,380 |
| You own afterwards? | Yes—worth ~£10,000 |
| Net cost (cash spent minus car's value) | £9,380 |
Hold On—The Comparison Looks Different Now
PCP total cost: £10,830 (and you own nothing)
HP net cost: £9,380 (and you own a car worth £10,000)
At first glance, HP looks cheaper
But that's misleading, because:
- You spent more cash upfront on HP (£3,000 deposit vs. £0 on PCP)
- Your monthly payments were higher on HP (£455 vs. £280)
- But at the end, you own the car on HP
The HP deal only makes sense financially if you:
- Keep the car and use it for several more years, OR
- Sell it or trade it in and recover some of that £10,000
If you trade it in immediately after 3 years, you'd likely get £9,500–£10,000 back, so your net cost is £9,380–£9,880.
Let's Try a Different Scenario: High Mileage
Now imagine you drive 20,000 miles per year instead of 12,000. How do the deals change?
Scenario C: PCP with high mileage
Same deal as Scenario A, but:
Excess mileage: You drive 60,000 miles in 3 years instead of 36,000 = 24,000 excess miles
Excess mileage cost: 24,000 miles × 10p/mile = £2,400
Wear and tear: (worse condition from higher mileage) = £600
New total: £10,080 (monthly) + £150 (gap insurance) + £2,400 (excess mileage) + £600 (wear) = £13,230
Scenario D: HP with high mileage
Same as Scenario B, but:
Nothing changes. You don't pay extra for mileage. You own the car. You can drive it however much you want.
Total cost: £19,380
Net cost (minus car value): ~£9,380
⚠️ Now PCP costs £13,230 vs. HP costs £9,380
For a high-mileage driver, HP is significantly cheaper.
Let's Try Another: Keeping the Car Beyond 3 Years
Scenario E: HP, kept for 6 years total
You finish your HP agreement after 3 years. The car is now yours. You keep driving it for another 3 years.
First 3 years: £19,380 (as above)
Years 4–6: Repairs and maintenance (no finance payments)
- Tyre replacement: £300
- Brake pads/discs: £200
- General servicing: £400
- One unexpected repair (suspension): £400
- Years 4–6 costs: £1,300
Total 6-year cost: £19,380 + £1,300 = £20,680
Car's value at 6 years: ~£4,000–£5,000
Net cost: ~£16,000 (if you sell it)
Cost per year: £2,667
Scenario F: PCP, then what?
You can't "keep" a PCP car beyond the agreement. At year 3, you either:
Option 1: Hand it back
You've paid £10,830 and own nothing. You need a new car.
Option 2: Buy the car
The guaranteed future value was £10,000. You pay that now.
Your total cost: £10,830 + £10,000 = £20,830 (to own a 3-year-old car you could've financed for less)
Option 3: Take out another PCP deal
You do this every 3 years. Over 6 years, you'll have done this twice, so you'll pay roughly 2 × £10,830 = £21,660, and you still own nothing.
⚠️ For someone who keeps cars long-term, HP wins easily
The cost-per-year drops significantly when you keep the car beyond the initial finance term.
The Real Cost Comparison
Here's a summary table for different driver profiles:
| Driver Profile | PCP | HP | Winner |
|---|---|---|---|
| Low mileage (8,000/year), returns car at 3 years | £10,830 | £9,380 net | HP (slightly) |
| Medium mileage (12,000/year), returns car at 3 years | £10,830 | £9,380 net | HP (slightly) |
| High mileage (20,000/year), returns car at 3 years | £13,230 | £9,380 net | HP (clearly) |
| Any mileage, keeps car 6+ years | £21,660+ | £16,000–18,000 net | HP (clearly) |
| Changes car every 3 years, enjoys variety | £32,490 (over 6 years) | Would need 2 HP deals + higher sales hassle | PCP (for convenience) |
But "Cheaper" Isn't Everything
PCP might be worth the extra cost if:
- You like new cars every 3 years (no depreciation anxiety, predictable payments)
- You hate dealing with repairs (warranty covers everything)
- You want predictable monthly payments (no surprise repair bills)
- You don't drive much and want peace of mind
HP is cheaper and better if:
- You drive a lot (mileage overages kill PCP)
- You keep cars long-term (HP's total cost per year drops significantly)
- You want to build equity (own something at the end)
- You like to modify cars (no penalties)
What Does Your Credit Score Affect?
Your credit history will change the interest rate offered, which massively affects HP affordability.
💡 Interest rate impact example
On an £18,000 HP deal:
- 5% interest = £455/month
- 7% interest = £485/month
- 12% interest = £558/month
A 7-point difference in interest rate (5% vs. 12%) adds up to £103/month, or £3,708 over 3 years.
Ready to Calculate Your Own Costs?
Use our car finance calculator to see exact figures based on your situation and credit profile.
Launch Calculator