The three main routes
Hire purchase (HP)
You pay a deposit, then fixed monthly payments over an agreed term. After the final payment (and a small option fee), the car is yours. Simple, predictable, and the easiest to compare — the price, term and rate tell you nearly everything.
Personal contract purchase (PCP)
Your payments cover the car’s predicted depreciation, not its full value, because a “guaranteed future value” (balloon) payment is deferred to the end. At the end you either pay the balloon and keep the car, hand it back, or use any equity as your next deposit. Lower monthly payments — but you never stop paying unless you hand it back or clear the balloon, and mileage caps and condition rules apply.
Personal loan
You borrow a fixed sum from a bank or lender, buy the car outright, and the car is yours from day one — no balloon, no mileage caps, and you can sell whenever you like. Rates depend on your credit profile; the cheapest headline rates go to the strongest applicants.
What really differs
| Question | HP | PCP | Loan |
|---|---|---|---|
| Monthly cost | Medium–high | Lowest | Depends on rate |
| Own it at the end? | Yes, automatically | Only if you pay the balloon | Yes, from day one |
| Mileage limits | No | Yes — charges per excess mile | No |
| Sell it early | Settlement figure required | Equity may exist — or not | Freely, once repaid |
Reading the true cost
The monthly payment is the marketing number; the total amount payable is the honest one. Compare deposit + all payments + any final balloon against the car’s cash price — the gap is the cost of credit. Our finance calculator shows that arithmetic for any HP-style deal so you can sanity-check quotes.
On PCP, ask for the guaranteed future value in writing, and check the predicted equity is realistic. Negative equity at the end of a PCP isn’t a disaster if you planned to hand the car back — but it changes the “trade up” pitch you may be given.
Questions to ask before signing
- What is the total amount payable — cash price, deposit, payments, fees, balloon?
- Is the rate fixed, and what APR am I being charged, not “typical”?
- Are there arrangement, option-to-purchase or early-settlement fees?
- (PCP) What are the mileage allowance and excess charges, and the condition rules?
- What happens if I want to settle early — how is the settlement figure calculated?