PCP vs HP: key car finance differences

General information only. Last reviewed: July 2026.

This guide is designed to help you understand common finance terms. It is not personal financial advice. Finance is subject to status, affordability and lender criteria.

What is PCP car finance?

Personal Contract Purchase (PCP) is a car finance product where your monthly payments are calculated on the depreciation of the vehicle during the agreement term, not its full value. A portion of the car’s price, the Guaranteed Minimum Future Value (GMFV), also called the balloon payment, is deferred to the end.

At the end of the term you have three options: pay the balloon payment to own the car outright, hand the car back subject to payments being up to date, fair wear and tear, mileage and agreement terms, or use any equity as a deposit on your next agreement.

PCP is commonly used for new and nearly new cars because it can combine lower monthly payments than an equivalent HP agreement with end of term flexibility. The exact figures depend on the vehicle, deposit, mileage, term and lender criteria.

What is HP car finance?

Hire Purchase (HP) is a straightforward car finance product where the full cost of the vehicle is spread over a fixed term in equal monthly instalments. There is no balloon payment, no mileage limit, and no final decision to make. You own the car outright as soon as the last payment clears.

HP is widely used for used car purchases and is often preferred by drivers who plan to keep the vehicle long term and want the simplicity of a single, fixed monthly cost until it is paid off.

PCP vs HP: side by side comparison

Feature	PCP	HP
Monthly payments	Often lower than equivalent HP because part of the vehicle value is deferred. Interest and fees may apply	Often higher than equivalent PCP because the full vehicle cost is repaid. Interest and fees may apply
Balloon payment at end	Yes, optional to pay	None
Ownership at end	Optional: buy, return, or part exchange	After the final payment and any option to purchase fee
Mileage limit	Yes, agreed upfront	None
Excess mileage charge	Yes, if limit exceeded	Not applicable
New cars	Commonly used where the GMFV is suitable	Can also be suitable
Used cars	May be available, depending on vehicle age and lender criteria	Commonly used
Early settlement	Possible, subject to agreement terms	Possible, subject to agreement terms
Voluntary termination right	Usually once you have paid, or pay, 50% of the total amount payable and meet agreement conditions	Usually once you have paid, or pay, 50% of the total amount payable and meet agreement conditions

PCP may suit you if

• You want a lower monthly payment than an equivalent HP agreement for the same car and deposit
• You like changing your car every two to four years
• You are happy to agree a mileage limit that reflects how you drive
• You want flexibility at the end, the option to own, not the obligation
• You are buying a new or nearly new car where the GMFV is strong

HP may suit you if

• You want to own the car outright with no final lump sum to find
• You drive high mileage and do not want to be restricted
• You plan to keep the vehicle for many years after the agreement ends
• You are buying a used car where a GMFV is harder to set
• You prefer simplicity: one fixed payment, pay it off, then own the car after the final payment and any option to purchase fee

Not sure which fits your situation?

Most people start with a car and a budget, not a finance product. Tell a Fynex specialist what you are looking at and we can help compare routes across our selected lender panel, showing the monthly figures clearly before you decide whether to proceed.

An initial enquiry does not involve a hard credit search. A formal application may involve a hard credit search, which will be explained before that stage.