Two of the most common ways to finance a car in the UK — but they work very differently. Here's a plain-English breakdown of each so you can choose with confidence.
| PCP | HP | |
|---|---|---|
| Monthly payments | Lower | Higher |
| Own the car at end? | Only if balloon paid | Yes, automatically |
| Mileage limit | Yes | No |
| Flexible at end? | Yes — 3 options | No — you own it |
| Best for | Changing cars often | Keeping long-term |
| Balloon payment | Yes (large) | No |
PCP is the most popular car finance product in the UK. You pay a deposit, then fixed monthly payments over typically 24–48 months. At the end, a large “balloon payment” — called the Guaranteed Minimum Future Value (GMFV) — remains outstanding.
The key feature is flexibility at the end of the term: you can pay the balloon and keep the car, hand it back with nothing more to pay, or use any equity as a deposit on your next deal.
Monthly payments are lower with PCP because you are only financing the depreciation of the vehicle — the difference between what it's worth now and what it will be worth at the end of the agreement. The balloon payment covers the residual value.
The downside: PCP agreements include an annual mileage cap. Exceed it and you'll pay a per-mile charge at the end. You also need to return the car in good condition or face charges for damage beyond fair wear and tear.
Hire Purchase is simpler. You pay a deposit and fixed monthly payments spread over the full value of the car. At the end of the agreement — once every payment is made — you own the vehicle outright. No balloon payment, no decision to make.
Monthly payments are higher than PCP because you are paying off the entire car value, not just the depreciation. But you build full equity throughout the agreement and end up owning an asset.
There is no mileage limit. You can drive as many miles as you like, which makes HP a better fit for high mileage drivers, people who use their car for work, or anyone who wants to keep the vehicle for years after the agreement ends.
Choose PCP if...
Choose HP if...
Both PCP and HP are available to people with imperfect credit histories — CCJs, defaults, missed payments, or no credit history at all. The interest rate will reflect your risk profile, and the lender pool narrows, but it is not an automatic dead end.
Specialist lenders assess applications individually rather than using a simple credit score threshold. They look at your income, your employment status, how long you've been at your address, and the nature of any past credit issues — not just the number.
Stoke Car Finance connects you with lenders on our panel who work with a range of credit profiles. Completing our form takes around 60 seconds and does not trigger a hard credit search.
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