In short
With hire purchase (HP) you pay off the whole car in equal monthly payments and it is yours at the end. With personal contract purchase (PCP) the monthly payments are lower because part of the price is left as an optional final payment. Most customers with adverse credit are offered HP. PCP can be arranged for some customers, subject to status.
The difference in one table
| Hire purchase (HP) | Personal contract purchase (PCP) | |
|---|---|---|
| Monthly payments | Higher, because you pay off the whole car | Lower, because part of the price is deferred |
| At the end | The car is yours after the last payment | Pay the final amount and keep it, hand it back, or put any equity towards another car |
| Mileage limit | None | Yes, agreed at the start. Extra charges apply if you hand the car back over the limit |
| Condition when you finish | Your own business, as the car is yours | Fair wear and tear only if you hand it back, or charges may apply |
| Total cost if you keep the car | Usually lower | Usually higher |
| With adverse credit | What most customers are offered | Available to some customers, subject to status |
How hire purchase works
You pay an optional deposit, then fixed monthly payments that cover the full price of the car plus interest. The lender owns the car until the final payment, so you cannot sell it before settling the finance. Some agreements add a small option-to-purchase fee to the last payment. After that, the car is yours.
Representative example (HP): cash price £8,995, deposit £500, amount of credit £8,495, 48 monthly payments of £250.82, total amount payable £12,539.36. Representative 19.9% APR (fixed). Finance subject to status.
You can try your own figures on the finance calculator, which shows HP payments.
How PCP works
A PCP splits the price into two parts. The monthly payments cover the difference between the price and what the lender expects the car to be worth at the end, plus interest. The rest is an optional final payment, sometimes called the balloon payment or guaranteed future value.
At the end you choose one of three things: pay the final amount and keep the car, hand the car back with nothing more to pay (if it is within the agreed mileage and in fair condition), or part-exchange it and put any equity towards your next car.
We do not show PCP figures here because they depend on the lender's valuation of that particular car, the mileage you choose and the term.
Why most adverse-credit customers are offered HP
With PCP the lender takes a view on what the car will be worth years from now, and many specialist lenders who consider CCJs, defaults or IVAs only offer HP. PCP can be arranged for some customers, depending on their circumstances, the car and the lender's decision. We tell you which options are genuinely open to you before you commit.
Which suits you?
- HP tends to suit you if you want to own the car, keep cars for a long time, drive a lot of miles, or want the lowest total cost.
- PCP tends to suit you if a lower monthly payment matters most, you like to change cars every few years, and your mileage is predictable.
Whichever you choose, pick a payment that still leaves room in your budget if something unexpected comes up. A cheaper car on a payment you can comfortably afford is better than a stretch.
Your rights on both
- Settling early. You can pay off an HP or PCP agreement at any time and get a rebate of the interest you have not used. The lender can charge a limited amount of extra interest.
- Voluntary termination. Under the Consumer Credit Act 1974, once you have paid half of the total amount payable, you can hand the car back and owe nothing more, as long as you have taken reasonable care of it. If you have paid less than half, you can still end it by bringing your payments up to half.
Voluntary termination is not recorded as a missed payment, but ask the lender how it will appear on your file before you use it.
Finance is subject to status, affordability and lender approval. Over 18s, UK residents only. This guide is general information, not personal financial advice. We are a credit broker, not a lender.