Car Finance Calculator (PCP vs HP) United Kingdom

Car finance in the UK usually means one of two products: Hire Purchase (HP) or Personal Contract Purchase (PCP). On the forecourt they look alike, with a deposit, a monthly payment and a fixed term, but they are built differently, and that shows in both your monthly outgoings and the total you pay. This calculator puts the two side by side using your price, deposit, interest rate and term.

How Hire Purchase works

You put down a deposit, and the rest of the price is financed and repaid in equal monthly instalments across the term. Each payment is part interest and part capital, and after the final instalment you own the car outright. Because you repay the whole balance, HP monthly payments are higher than PCP for the same car, term and rate, but there is no lump sum at the end. HP suits people who want to keep the car for a long time and prefer certainty to a lower monthly figure.

How PCP works

PCP lowers your monthly payments by deferring a large part of the car’s value to the end of the agreement. That deferred lump sum is the balloon payment, formally the Guaranteed Minimum Future Value (GMFV). During the term you pay off the gap between what you financed and the balloon, plus interest on the whole balance. At the end you can pay the balloon and keep the car, hand it back and walk away (within mileage and condition limits), or part-exchange it and put any equity above the balloon towards your next car. That flexibility is why PCP dominates new car finance in the UK.

Comparing the true cost

A lower monthly payment does not make a deal cheaper. The calculator shows a total cost for each product so you can compare like with like. For PCP the total assumes you pay the balloon to keep the car, matching HP, where you also end up owning it. Interest is charged on the full financed balance under both products, so a large balloon lowers your monthly payments but you still pay interest on that portion until the final payment. Which product costs less overall depends on the rate, the term and the size of the balloon.

A worked example

A £25,000 car with a £2,000 deposit is financed over 48 months at 8.9% APR. On HP you finance £23,000 and repay it in full, about £571 a month, and own the car at the end; the total cost is about £29,421. On PCP with a £10,000 balloon, the monthly payment falls to about £397, roughly £174 a month less. To keep the car you then pay the £10,000 balloon, and adding that to the deposit and monthly payments gives a total of about £31,059, around £1,640 more than HP, because you pay interest on the deferred balloon for the whole term. The choice comes down to whether the lower monthly commitment and the option to hand the car back are worth more to you than HP’s lower total cost.

Which one should you choose

HP suits you if you plan to keep the car for years and want it paid off with no lump sum at the end. PCP suits you if you change cars every few years, want the lowest monthly payment and value the option to walk away or trade up. On PCP, a larger balloon cuts the monthly payment but leaves more to find later and builds equity more slowly. Exceeding the mileage limit brings per-mile charges when you hand the car back. On both products the APR matters most after the amount financed, so compare rates as carefully as cars.

Assumptions and limitations

This is a planning estimate. It assumes a fixed interest rate and equal monthly payments, as most UK HP and PCP agreements have, and treats the APR you enter as the annual cost of borrowing. It does not include arrangement or option-to-purchase fees, add-ons such as GAP insurance or service plans, or excess mileage and damage charges at the end of a PCP. The PCP total assumes you pay the balloon; if you hand the car back your total outlay is lower but you own nothing. Dealer finance quotes vary with your credit profile and any manufacturer deposit contribution, so confirm the figures with the finance provider before you commit.

About This Car Finance Calculator

Use this car finance calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.