What this calculator works out
This calculator compares the two most common ways of financing a car. Hire purchase spreads the whole price across the term, so you own the car at the end. Personal contract purchase defers a large final payment, so the monthly cost is lower but a decision is waiting for you at the end of the agreement.
It shows the monthly payment under each structure using the same price, deposit, rate and term, so the difference you see is the structure itself rather than the deal.
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Before you compare
- Find the guaranteed future value from the PCP quote and enter it as the final payment. It is the figure the lender guarantees the car will be worth, and it drives the whole comparison.
- Check the annual mileage limit on the PCP and be honest about your real mileage. Excess mileage charges are per mile and add up quickly.
- Read the fair wear and tear standard. Damage beyond it is charged for at the end.
- Decide in advance whether you want to own the car. If you do, hire purchase is usually the simpler route.
On a PCP, the guaranteed future value is deferred rather than removed. You pay interest on it throughout the agreement even though you are not repaying it. That is why PCP monthly payments are lower but the total cost is usually higher if you eventually pay the balloon and keep the car.
How this calculator works
Hire purchase amortises the full amount borrowed. PCP amortises only the part of it that is not deferred:
r = APR ÷ 12 ÷ 100, n = years × 12
P = price − deposit
HP monthly = P × r ÷ (1 − (1 + r)−n)
PCP monthly = (P − final payment ÷ (1 + r)n) × r ÷ (1 − (1 + r)−n)The final payment is discounted back to today's value before being deducted, which is what makes the PCP payment lower while still charging interest on the deferred amount across the whole term.
The calculator compares monthly cost and the final payment. It cannot compare what happens at the end of a PCP, because that depends on the car's actual market value at the time and on what you decide to do.
Worked example: a £25,000 car over four years
Using the default figures — £25,000 price, £3,000 deposit, 8.9% APR over four years and a £10,000 final payment:
- Hire purchase: £546.43 a month. Total including deposit: about £29,228, and the car is yours.
- PCP: £372.22 a month, plus a £10,000 payment at the end. Total if you pay it and keep the car: about £30,866.
The PCP saves £174 a month, which is a genuine and often decisive difference to a household budget. But if you take the PCP and then pay the balloon, the car costs roughly £1,638 more. The PCP is not cheaper — it is lower monthly and more flexible. Whether that flexibility is worth £1,638 depends on whether you would actually use it.
Common mistakes
- Comparing on monthly payment alone. The two structures are not comparable on that figure, which is the entire reason the difference exists.
- Underestimating annual mileage on a PCP. Excess mileage charges are billed per mile at the end and are not negotiable then.
- Assuming you will have equity at the end. Equity only exists if the car is worth more than the guaranteed future value, which is not guaranteed in your favour.
- Rolling negative equity into the next agreement. This carries the shortfall forward and compounds it.
- Treating a PCP as ownership. Until the final payment is made, the finance company owns the car.
Frequently asked questions
Which is cheaper overall?
Hire purchase, if you intend to keep the car. You pay interest on less deferred capital and finish owning the vehicle outright. PCP is usually cheaper only if you hand the car back at the end and genuinely valued the lower monthly payments and the flexibility along the way.
What are my options at the end of a PCP?
Three. Pay the final payment and keep the car; hand it back, subject to mileage and condition, and walk away; or use any equity above the guaranteed future value as a deposit on the next agreement. The third is the most common and the one dealers steer towards, which is worth being aware of.
What is negative equity?
It is when the car is worth less than the amount outstanding on the agreement. On a PCP the guaranteed future value protects you at the end, provided you meet the mileage and condition terms — you can hand the car back regardless. On hire purchase, or if you want to exit early, negative equity is a real risk, particularly in the first half of an agreement.
Can I exit a PCP early?
Yes, but the arithmetic is rarely favourable in the early years. You can request a settlement figure, and voluntary termination rights may apply once you have paid half the total amount payable. Selling privately requires settling the finance first, because the car is not yours to sell.
Does the calculator account for mileage charges or servicing?
No. It compares the finance structures only. Excess mileage charges, end-of-contract condition charges, servicing plans and insurance all sit outside it, and any of them can change which option is better for you.
Related tools
References
- MoneyHelper — impartial explanations of PCP, hire purchase and leasing
- Financial Conduct Authority — motor finance regulation, including affordability and commission rules
Sources are checked at publication and can change — how I choose and check references.