Difference between PCP and HP

Posted on 7th March 2018

At HPL Motors, we offer both PCP and HP used car finance, from prices from as little as £55 per month. The cost can be spread out over a period of now up to seven years.

But what just is PCP and HP? And which one makes the most sense for you?

PCP stands for Personal Contract Purchase.

As of March 2016 (according to whatcar.com), 76% of car finance agreements were PCP. It is the most popular way to finance your car, and for a good reason too.  It involves small monthly payments, with a larger monthly payment at the end of your contract (often called a ‘balloon payment’ or an ‘MGFV’). This may seem like a negative, however paying this balloon payment at the end of your contract is not the only choice. 

If you do not want to pay this final lump sum, then you can return the car, and that is that. Alternatively, in cases where the car is worth more than the balloon payment, you can use the difference between this final sum and the market value as a deposit for another car. PCP is perfect if you an unsure what you will do at the end of the agreement.

PCP is also attractive due to its small monthly payments, and its flexibility. The choice at the end to either pay back the MGFV, return the car with nothing else to pay, or trade in the car for a new one, is undeniably inviting.

Another positive of PCP is that there is a big manufacturer deposit contribution, as well as a lower interest rate than that of HP.

HP stands for Hire Purchase, and is the lesser popular choice.

Yet, do not rule it out so easily. There are some advantages to choosing this type of payment. Indeed, it can even work out cheaper than a PCP over the lifetime of a loan, as you are giving back the payments quicker through equal monthly payments, over three or four years. This means there is not an unattractive lump sum at the end if you want to buy at the end of the agreement, as is the case with PCP, as your payments are divided equally. HP is perfect if you know you want to keep the car at the end of the agreement, and higher payments do not deter you.

In addition, HP does not have mileage limits. unlike PCP which assumes that you will cover only a certain amount of road per year, and you cannot exceed this. There is no end balloon payment in HP agreements, and thus no mileage limit, as whether the car loses its value due to mileage does not affect the conditions of the loan. 

If you exceed the stated mileage on a PCP loan, you will face charges of a fine. Indeed, if your average mileage changes due to a new job, new house, new daily routine, your agreement can be revised if you ring your finance company.

The best thing to do is to compare prices of both PCP and HP deals if you are unsure.

Using the HPL Motors finance calculator, you can decide which agreement suits you best. Just go on whichever car you like, scroll down and enter your credit rating, preferred deposit, payment period and annual mileage (PCP). It will automatically tell you a tailored finance plan.

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