PCP vs HP car finance
PCP vs HP car finance: what’s the difference and which is right for you?
Personal contract purchase (PCP) and hire purchase (HP) are two common ways to finance a vehicle, but they work differently. PCP can offer lower monthly payments and give you more flexibility at the end of the agreement, while HP provides a more direct route to ownership.
This guide explains how each option works, sets out information about the payment plans, and presents all the factors you should consider before deciding which may suit you best.
What is PCP car finance?
PCP stands for personal contract purchase. You will pay a deposit followed by fixed monthly payments. Part of the car’s value is deferred until the end of your agreement as an optional final payment, also known as a balloon payment. This is often referred to as the Guaranteed Future Value (GFV) and is the estimated value of the vehicle at the end of the contract, taking into account the length of the agreement and estimated mileage. This is why PCP monthly payments are usually lower than those for an equivalent HP agreement.
The lender owns the vehicle during the agreement. At the end, you can pay the optional final payment to keep it, or you can part-exchange or return it. Mileage or condition charges may apply if you return it outside the agreed terms.
If you’re considering a PCP agreement, you can explore how ALPHERA Select PCP works, including eligibility, features and the application process.
What is HP car finance?
HP stands for hire purchase. It allows you to spread the cost of the vehicle while working towards ownership. You will pay a deposit followed by fixed monthly payments covering the amount financed, the interest and any applicable fees. Because no large optional final payment is deferred, the monthly payments are usually higher than those for an equivalent PCP agreement.
The lender owns the vehicle during the agreement. Ownership will pass to you after all required payments have been made including any option-to-purchase fee (usually a small, fixed amount which may vary according to the agreement). There is no contractual annual mileage limit, although mileage and condition can affect the vehicle’s future value.
If a hire purchase agreement sounds like the right fit, you can find out more about ALPHERA’s HP finance, including how it works and what’s included.
PCP vs HP at a glance
PCP keeps monthly payments lower by deferring part of the vehicle’s cost and gives you three end-of-agreement options. HP usually has higher monthly payments, with ownership as the intended outcome.
The table below summarises the key differences:
| ALPHERA Select PCP | ALPHERA Hire Purchase | |
| Monthly payments | Usually lower than equivalent HP payments | Usually higher than equivalent PCP payments |
| End of agreement | Keep, part-exchange or return the vehicle | Own the vehicle after all required payments |
| Final payment | Optional final payment if you keep the vehicle | No optional balloon payment, but there may be an option-to-purchase fee |
| Mileage | Annual mileage agreed at start | No contractual annual mileage allowance |
| Ownership during agreement | Finance provider | Finance provider |
| Best suited to | Flexibility and potentially lower monthly payments | A straightforward route to ownership |
Which will work better for you: PCP or HP?
The right option depends on the vehicle, your budget, the agreement term, APR, expected mileage and whether ownership or flexibility matters more to you.
PCP may suit you best if:
- lower monthly payments are important
- you want flexibility to keep, part-exchange or return the car
- you expect to change your vehicle regularly
- you are comfortable agreeing a mileage allowance
- you do not yet know whether you want to own the vehicle
HP may suit you best if:
- you know you want to own the vehicle at the end of the agreement
- you prefer a straightforward repayment structure
- you do not want a large optional final payment (also known as a balloon payment)
- you expect to drive more and do not want a contractual annual mileage limit
- you are comfortable with potentially higher monthly payments
When comparing quotations, look beyond the monthly figure. The deposit, term, APR, fees and total amount payable all affect the overall cost. Make sure any agreement remains affordable for the full term.
What should you consider before choosing PCP or HP?
Before deciding, it can help you to ask yourself the following questions:
- Do I want to own the vehicle at the end?
- Is keeping monthly payments lower a priority?
- How many miles do I expect to drive each year?
- Am I comfortable with an optional final payment?
- Do I expect to change vehicles at the end of the agreement?
- What deposit and agreement term can I afford?
- What is the total amount payable under each option?
Frequently asked questions
PCP usually has lower monthly payments because part of the vehicle’s cost is deferred until the end. However, the total amount payable may be higher than HP if you make the optional final payment and keep the vehicle.
ALPHERA owns the vehicle during both agreements. With HP, ownership passes to you after all required payments and the option-to-purchase fee have been paid. With PCP, you must pay the optional final payment if you want to keep the vehicle.
No. Hire Purchase does not include the large optional final payment associated with PCP, although an option-to-purchase fee may apply at the end.
Choose the finance option that suits your priorities
For more information on your vehicle financing options and which might work best for you, please get in touch with your local retailer.
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