Hire purchase (HP)
You pay a deposit and fixed monthly payments that cover the full price of the car plus interest. After the last payment you own it. Monthly payments are higher than PCP, but there is no large final payment.
Personal contract purchase (PCP)
Monthly payments cover the car's expected depreciation plus interest, leaving a final balloon payment, the guaranteed minimum future value. At the end you can pay it and keep the car, hand the car back, or part-exchange. Mileage limits and condition charges apply.
Personal loan
You borrow the money and buy the car outright, so you own it from day one and can sell it whenever you like. It is unsecured, so your credit record matters more.
Which suits you
- Want to own it and keep it for years: HP or personal loan
- Want lower monthly payments and a new car every few years: PCP
- Buying privately: personal loan
Common questions
Can I settle PCP early?
Yes. You can request a settlement figure at any time, or use voluntary termination once half the total amount payable has been paid.
Does car finance need a deposit?
Not always, but a deposit lowers monthly payments and total interest.
This guide is general information, not personal financial advice. If you are worried about debt, free help is available from MoneyHelper, StepChange and Citizens Advice.