PCP vs HP Calculator UK
The balloon (guaranteed future value) is set by the finance company and is usually the car’s predicted value at the end of the term. A bigger balloon means lower PCP monthly payments but more to pay if you keep the car.
Model: HP monthly payment is calculated on the full amount financed (price minus deposit). PCP monthly payment is calculated on the amount financed minus the present value of the balloon, because the balloon is paid at the end, not during the term. Totals include the deposit. No “better” verdict is given — the right choice depends on what you want at the end.
What PCP and HP actually are
Personal Contract Purchase (PCP) and Hire Purchase (HP) are the two most common ways to finance a car in the UK, and they look similar until the end of the agreement. With HP, you pay a deposit, then fixed monthly payments, and after the final payment the car is yours. There is no balloon, no mileage limit and no decision to make at the end. With PCP, you also pay a deposit and monthly payments, but the payments only cover part of the car’s value. The rest — the balloon payment, also called the Guaranteed Future Value (GFV) — is deferred to the end. At the end of a PCP you have three choices: pay the balloon and keep the car, hand the car back and walk away, or use the car as a part-exchange towards another car if it is worth more than the balloon.
That deferred balloon is why PCP monthly payments are lower. On the same car, the same deposit, the same APR and the same term, PCP is always cheaper per month, because you are financing less of the car during the term. But the total cost is usually higher if you keep the car, because you pay interest on the balloon amount for the whole term even though you do not pay it off until the end, and because PCP APRs are often higher than HP APRs on the same car.
The comparison on a £20,000 car
| PCP | HP | |
|---|---|---|
| Monthly payment | £319.15 | £455.66 |
| Total paid if you keep the car | £25,319.00 | £23,871.80 |
| Total paid if you hand the PCP car back | £17,319.00 | — (no hand-back option) |
| Interest paid (keeping the car) | £5,319.00 | £3,871.80 |
| What you own at the end | Nothing, unless you pay the £8,000 balloon | The car |
| Mileage limit? | Yes — excess mileage is charged per mile | No |
| Damage charges? | Yes, if you hand it back in poor condition | No |
Read the table as a trade-off, not a ranking. PCP’s £136.52-a-month saving is real money — £6,552.96 over 48 months — and if you want a new car every three or four years, handing the PCP car back and starting again may suit you. But if you keep the car, PCP costs £1,447.20 more than HP for the same car, and you have spent four years paying for a car you do not own. HP’s higher monthly payment is the price of ownership.
Three questions to ask before you choose
- Will you keep the car? If yes, HP is usually cheaper in total. If you change cars every few years, PCP’s lower payments and hand-back option may matter more than the total.
- Will you stay inside the mileage limit? PCP agreements charge for every mile over the agreed limit, often 5p to 15p a mile. Driving 5,000 miles over the limit at 10p a mile is a £500 bill at the end. HP has no limit.
- What is the APR? The APR matters more than the monthly payment. A PCP at 12.9% APR can cost more in total than an HP at 7.9% APR, even though the PCP monthly payment is lower. Always compare the total amount payable, which the dealer must show you.
Watch out for these
Dealers often sell on the monthly payment, because a low monthly figure is easy to say yes to. But a low monthly payment can hide a long term, a high APR, or a large balloon. Always ask for the total amount payable, the APR, the deposit, the term and the balloon in writing before you sign. Check the mileage limit against your real driving — most people underestimate their mileage. And remember that both PCP and HP are regulated by the Financial Conduct Authority, and the Consumer Credit Act gives you a 14-day cooling-off period after signing, and the right to voluntary termination once you have paid half the total amount payable. If the dealer cannot explain the balloon, the excess mileage charge or the APR in plain language, walk away.
What if the car is worth more — or less — than the balloon?
The balloon is a prediction, and predictions are sometimes wrong. If the car is worth more than the balloon at the end of the PCP, the difference is equity, and it is yours to use as a deposit on your next car. For example, if the balloon is £8,000 and the car is worth £10,000, you have £2,000 of equity. That is the best outcome for a PCP customer, and it is one reason dealers like PCP: a customer with equity usually comes back for another car. If the car is worth exactly the balloon, you can hand it back and walk away owing nothing. And if it is worth less than the balloon — negative equity — you can still hand it back and walk away, because the balloon is guaranteed. That guarantee is the finance company’s risk, not yours, provided the car is within the mileage limit and in reasonable condition.
What you cannot do is keep the car without paying the balloon, and you cannot hand back a car that is damaged or over the mileage limit without paying for the excess. Damage charges are based on fair wear and tear, and the finance company must show you how they were worked out. Before the term ends, ask for a valuation of your car from more than one source, and compare it with the balloon in writing. If the car is worth more, you have a choice: use the equity as a deposit, pay the balloon and keep the car, or sell the car privately, settle the balloon, and keep the difference. The calculator’s totals assume you either pay the balloon or hand the car back; the equity in between is where the real decision lives.
Related: Car Finance Settlement Calculator · Fuel Cost Calculator · Company Car Tax Calculator
Sources: Financial Conduct Authority, consumer credit rules for PCP and HP; Consumer Credit Act 1974 (voluntary termination and cooling-off rights). The comparison maths is standard amortisation; the APR, term and balloon are inputs you change to match the deal offered. Checked 13 November 2026.