The three types at a glance
| Hire purchase (HP) | PCP | Personal contract hire (lease) | |
|---|---|---|---|
| Monthly payment | Highest | Lower | Often lowest |
| Own the car at the end? | Yes | Only if you pay the final payment | No |
| Mileage limit | No | Yes | Yes |
| Damage charges at the end | No | Yes, if you hand it back | Yes |
| Can you sell it during the deal? | After settling | After settling | No |
| Voluntary termination at 50% | Yes | Yes | No |
Hire purchase (HP)
You pay a deposit, then fixed monthly payments that cover the whole price plus interest. After the last payment, and usually a small option-to-purchase fee, the car is yours. HP suits people who keep cars for many years, or who drive high mileages.
Personal contract purchase (PCP)
Part of the car's price is set aside as a final "balloon" payment, the guaranteed minimum future value (GMFV). Your monthly payments cover the rest, plus interest on the full amount borrowed. At the end you can:
- pay the balloon and keep the car,
- hand it back and walk away, subject to mileage and condition charges, or
- use any equity, if the car is worth more than the balloon, as a deposit on another car.
Leasing (personal contract hire)
You pay an initial rental, often three, six or nine months' worth, then a fixed monthly rental. At the end you hand the car back. There is no option to buy. Leasing deals can be very competitive on new electric cars, but excess mileage and damage charges can be expensive.
A worked example
A £25,000 car with a £2,500 deposit over 48 months at 9.9% APR:
| HP | PCP (£9,000 balloon) | |
|---|---|---|
| Monthly payment | about £565 | about £410 |
| Total interest | about £4,620 | about £6,185 |
| Total to own the car | about £29,620 | about £31,185 |
Figures from our PCP and HP calculator, excluding fees. Real quotes vary with the lender's rate and fees.
PCP costs about £155 less a month, but about £1,565 more in total if you keep the car, because the balloon is borrowed for the whole four years.
Which should you choose?
- You want to own the car and keep it: HP, or a personal loan if the rate is lower.
- You change cars every 3 to 4 years and want lower payments: PCP.
- You never want to own the car and want a fixed cost: leasing.
- You drive a lot of miles: HP, because PCP and leasing charge for extra miles.
Car finance compensation
The Financial Conduct Authority is running a redress scheme for motor finance taken out between 2007 and 2024 where commission was not properly disclosed. You do not need a claims company to be included. Check the FCA's consumer pages.
Sources
- Which?: Car finance options explained
- FCA: Car finance complaints and redress
- Consumer Credit Act 1974, section 99
Checked against official sources on 15 October 2026. Rules and prices change, so confirm anything important on GOV.UK. Spotted something out of date? Tell us.