PCP vs HP calculator
The same car on two kinds of agreement. PCP almost always wins on the monthly payment. Whether it wins overall depends entirely on whether you keep the car.
How this is calculated
Hire purchase spreads the whole balance across the term, so the final payment clears the debt and the car becomes yours.
PCP defers part of the value to a balloon payment at the end. You pay interest on the full balance throughout, but only repay the part above the balloon, which is why the monthly figure is lower.
At the end of a PCP you hand the car back, pay the balloon to keep it, or part exchange any equity into a new agreement. Only the second of those leaves you owning a car.
Mileage limits and condition charges are not modelled. Exceeding the agreed mileage on PCP typically costs between 5p and 15p a mile, which can add several hundred pounds at handback.
Rates used · 2026/27
| Hire purchase | you own the car at the end |
| PCP | balloon payable to own it |
| Typical PCP mileage limit | 8,000 to 12,000 a year |
| Excess mileage charge | commonly 5p to 15p a mile |
Last checked July 2026. Source: HMRC and gov.uk.
Worked example
A £22,000 car with a £3,000 deposit over 48 months: hire purchase at 9.9% costs £480.98 a month and £26,087 in total, and the car is yours. PCP at 7.9% with an £8,500 balloon costs £311.80 a month, £169 less, but £26,466 to actually own it. PCP is cheaper only if you hand it back.
Common questions
Why is PCP cheaper each month?
Because you are only repaying the difference between the car price and its guaranteed future value. The balloon is deferred rather than avoided.
Which is cheaper overall?
Hire purchase, if you intend to keep the car. PCP can be cheaper if you genuinely hand it back every few years and never want to own anything.
What happens at the end of a PCP?
Hand it back, pay the balloon to keep it, or use any equity above the balloon as a deposit on the next agreement. The third option is how people end up in a permanent cycle of payments.
Does the mileage limit matter?
A great deal. Exceeding it is charged per mile at handback, and the guaranteed future value assumes the car comes back in good condition.