PCP vs HP

The numbers, side by side

Same car. Same deposit. Same term. Same APR. The only difference is the product structure.

PCP's monthly payment of £349 looks like the obvious choice. But if you keep the car and pay the balloon, you've spent £29,252. HP costs £596 a month and feels harder, but the total is £28,608. And the bank loan at £565 a month — which is only £31 more than PCP and £31 less than HP — costs £27,120 in total.

The cheapest product is the one with the lowest rate. That's almost always the bank loan.

Who owns the car when

This matters more than most buyers realise.

• Bank loan: You own the car from day one. The lender has no claim on it. You can sell it anytime, modify it, run it into the ground. It's yours.
• HP: The finance company owns it until your final payment. You can't sell it without settling the finance first. You own it on day one of month 49.
• PCP: You never own it unless you pay the balloon. For three or four years, you're driving a car that belongs to the finance company. If you hand it back at the end, you've effectively been renting it.

None of these are wrong choices. They're just different positions. Know which one you're in.

Mileage

HP has no mileage cap. Drive 30,000 miles a year, pay the same monthly payment either way. The depreciation is your problem once you own the car — not anyone else's.

PCP is different. Every PCP contract has an annual mileage limit. Exceed it, and you'll pay excess charges when you return the car. Rates of 10-25p per mile are common. If you drive 15,000 miles on a 10,000-mile-a-year allowance, that's 20,000 excess miles over 4 years at 15p/mile. £3,000. On top of everything else.

High-mileage drivers should seriously consider HP over PCP, or a bank loan if they can get one.

Flexibility

PCP's walk-away option is genuinely useful. At the end of the contract, you can return the car, pay nothing more (within mileage and condition limits), and move on. For people who want a new car every 3-4 years, that's a clean exit. No need to find a buyer, no depreciation risk on a large balloon payment.

HP doesn't have a walk-away in the same sense, but both products have voluntary termination rights under Section 99 of the Consumer Credit Act. Once you've paid 50% of the total amount payable, you can hand the car back. With HP it's a cleaner calculation — no balloon to factor in. With PCP, the balloon is part of the total amount payable, which means you typically need to pay two-thirds of the monthly term before you hit the 50% threshold.

The Reddit consensus

If you spend any time in UK personal finance forums, you'll see the same advice repeated: "just get a bank loan." It's usually right. Bank loans are cheaper, they give you ownership from day one, and there's no mileage or condition trap at the end.

But it's not always right. Three situations where dealer finance wins:

• 0% manufacturer deals. Some manufacturers subsidise PCP rates to 0% on new models to shift stock. You can't borrow money cheaper than free. These deals are worth taking.
• Credit score issues. If your credit history makes personal loan rates high or the application is declined, dealer finance via HP may be the only accessible route.
• Cash flow constraints. PCP's lower monthly payment is real. If the HP or bank loan payment would stretch your budget uncomfortably, PCP buys you breathing room — at a cost you should quantify first.

When PCP wins

• The manufacturer has a 0% or sub-2% APR deal on the car you want
• You want to change cars every 3-4 years without the hassle of selling
• You drive under 10,000 miles a year
• Monthly cash flow matters more than total cost right now

When HP wins

• You want to own the car outright
• You drive high miles — no mileage cap to worry about
• You're buying a used car and can't get a competitive bank loan rate
• You want the simplest possible VT calculation if things go wrong

When the bank loan wins

Almost always, if you can get one at a decent rate.

The Bank of England's average personal loan rate in March 2026 was 4.1% APR. Most HP deals on used cars run 8-15%. That gap is £1,000-£2,000 over a 48-month term on a typical used car purchase. A bank loan is more paperwork, but the saving is real.

Check a personal loan rate before you go into any dealership. It takes five minutes online. That number is your benchmark. If the dealer can't beat it, you know what to do.

Run your own numbers

The comparison above uses one set of assumptions. Your car price, deposit, term, and rate will all be different. Use the calculator below to see your actual figures before you commit to anything.

The bottom line

PCP and HP are both legitimate ways to finance a car. PCP suits people who want flexibility and lower monthly payments. HP suits people who want ownership and no mileage trap. A bank loan suits almost everyone else.

The mistake is picking a product because the salesperson recommended it, or because the monthly payment fits your budget, without checking the total cost. All three products let you drive the same car. The difference is how much you pay for that privilege — and who owns it while you do.