Plain-English guide
On balance, HP usually costs less overall and leaves you owning the car; PCP keeps the monthly lower; leasing is cheapest per month but you never own anything.
Worked example
On HP you pay about £452 a month and £23,695 in total, with the car yours at the end. On PCP with an £8,000 balloon you pay about £314 a month (£138 less) but £25,086 to own it, roughly £1,400 more. That £1,400 gap is the price of the lower monthly, because you finance the balloon for the whole term. Run it on the true-cost calculator.
In a PCP vs HP comparison, HP usually costs less overall and leaves you owning the car, while PCP keeps the monthly lower; leasing is cheapest per month but never leads to ownership. The difference comes down to the optional final payment (the balloon, set at the GMFV), which PCP has and HP does not, and whether you keep the car. On the same deposit, term and APR, the balloon is what makes the PCP monthly lower and its total amount payable higher.
The table below compares PCP, HP and leasing on the monthly, the balloon, ownership, mileage limit and Consumer Credit Act protections. A worked example then prices the same car on PCP and HP. The rest of the page covers mileage, ownership and how each agreement ends. We sell no finance, so this is an independent comparison.
The difference between PCP, HP and leasing
PCP finances the car's depreciation with an optional balloon, HP finances the whole price so you own it, and leasing is long-term rental you hand back. That single difference drives the cost and the ownership.
PCP and leasing both set a mileage limit because the car's future value depends on it: extra miles cut resale value. HP has no limit, because you're buying the whole car. Only PCP and HP are regulated credit agreements under the Consumer Credit Act, so voluntary termination and early-settlement rights apply to them but not to a lease. See each in detail on PCP and HP.
PCP, HP and leasing also differ on who carries the depreciation risk. On HP the car is yours, so if it loses value faster than expected the loss is yours, but so is the upside: if it holds its value, the equity is yours to keep when you sell. On PCP the lender guarantees a minimum future value (the GMFV), so if the market drops below that figure you can hand the car back and walk away, and the lender takes the loss. If the car is worth more than the GMFV, you keep the difference as equity. Leasing hands all the depreciation risk to the leasing company, which is why the monthly reflects their prediction of the car's value, not yours.
The regulatory gap between these three matters when something goes wrong. On PCP and HP you can use voluntary termination to hand the car back once you've paid 50% of the total, and claim an early-settlement interest rebate. On a lease neither right applies. You are bound by the hire contract's own terms, which can be stricter on damage and mileage and offer no statutory exit. That asymmetry is a real cost of leasing's lower monthly, even if it never shows up on the quote.
| PCP | HP | Leasing | |
|---|---|---|---|
| Monthly | Low | Higher | Lowest |
| Balloon? | Yes (GMFV) | No | No |
| Own it? | Only if you pay the balloon | Yes, at the end | No |
| Mileage limit? | Yes | No | Yes |
| CCA protections? | Yes | Yes | Hire rules only (it's a rental) |
Is PCP or HP cheaper?
HP is cheaper overall; PCP keeps the monthly lower. On a £20,000 car with £2,000 down over 48 months at 9.9% APR, HP costs about £452 a month and £23,695 in total. PCP with an £8,000 balloon is about £314 a month but £25,086 to own.
The reason PCP costs more in total despite the lower monthly is the balloon. On PCP you borrow the car's price minus the deposit, as on HP, but the monthly payments only pay down the part above the balloon, so each monthly covers the depreciation plus interest on the whole balance. You then owe the whole balloon at the end, and you've paid interest on it for the full term. On HP you pay off every pound of the car's price over the term, with nothing deferred, so there's no balloon interest layered in.
Worked example: the same £20,000 car
Which suits low vs high mileage?
HP suits high mileage because it has no limit; PCP and leasing suit lower, predictable mileage. Go over a PCP or lease limit and you pay an excess-mileage charge.
PCP and leasing set an annual mileage cap (often 8,000 to 12,000 miles) and charge a few pence per mile over it, because extra miles cut the car's future value and so the GMFV the lender has guaranteed. If you drive a lot or your mileage is hard to predict, HP avoids the charge entirely, since you own the whole car and its end value doesn't matter to the lender. Our mileage limits guide shows how the charges add up.
Setting a higher mileage up front raises the PCP monthly (because the GMFV is set lower) but usually costs less than paying the excess rate after the fact. Some PCP lenders let you buy extra miles mid-term at a discount versus the excess rate, so check your credit agreement.
Which lets you own the car?
HP leaves you owning the car at the end, PCP only if you pay the balloon, and leasing never does. Ownership is the clearest line between the three.
With HP, the car is yours once the final payment and a small option-to-purchase fee are made, and there's nothing to decide at the end. With PCP, you own it only if you pay the balloon (the GMFV); otherwise you hand it back within the mileage and condition terms, or part-exchange any equity into a new deal. Leasing is rental from start to finish, so you always return the car and never have a buy option.
Ownership matters beyond pride: only the legal owner can sell the car, and a financed car can only be sold once the finance is settled. On HP and PCP the lender must be paid off before or as part of any sale; on a lease you can't sell the car at all.
How the end of each agreement works
HP ends with automatic ownership, PCP ends with a three-way choice, and leasing ends with a simple hand-back. Knowing how each one ends helps you choose which to start.
How each agreement ends changes the whole economics of the deal. On HP the end is a clean transfer of ownership with nothing left to decide, which is why HP is described as the 'keep it simple' option. On PCP the end is a genuine decision point that can cost or save you thousands: pay the balloon and keep a car you now own outright, hand it back and owe nothing more, or part-exchange it and roll any equity into a new agreement. On a lease the end is a hand-back with an inspection, where the condition standard and the mileage limit decide whether you pay extra or walk away clean.
You do not have to wait until the end on any of the three. PCP and HP both allow early settlement at any point with a statutory interest rebate, and both allow voluntary termination once you've hit the 50% threshold. Leasing is harder to exit early: most lease contracts charge a termination fee that can amount to most or all of the remaining rentals, so the flexibility is lower despite the lower monthly.
- HP: pay the final instalment and the option-to-purchase fee, and the car is yours, with no decisions, charges or hand-back at the end.
- PCP: choose to pay the balloon (GMFV) and keep the car, hand it back within the mileage and condition terms, or part-exchange any equity into a new deal.
- Leasing: hand the car back inside the mileage limit and BVRLA fair-wear-and-tear standard, pay any charges, then walk away or start a new lease.
Voluntary termination: PCP and HP only
Worked example: the same £20,000 car
Which is best for your situation?
HP wins for keeping the car and high mileage; PCP wins for a low monthly and easy upgrades; leasing wins for a fixed all-in cost with no ownership hassle. Our view: pick by your situation, not the headline monthly, because the total amount payable and the mileage limit decide the real cost.
A common mistake is to let the showroom steer the choice. Dealers earn more on some products than others, and the monthly a salesperson quotes first is rarely the cheapest overall. It is the one most likely to close the sale. The defence is to walk in knowing your own numbers: the total amount payable on each type at your price, your deposit and your term. The main car finance calculator gives you that comparison in under a minute, and once you have it, you can judge any headline monthly against it.
If you cannot predict your mileage (a new job with an unknown commute, say, or a growing family), HP or a personal loan removes the risk that PCP and leasing carry. On balance, paying a few pounds more per month to avoid a potential £800 excess-mileage bill at the end is often the rational trade. If your mileage is reliably low and you change cars often, PCP's lower monthly and easy upgrade path usually win, even at the higher total cost.
- You want to own the car and keep it 5+ years: HP (cheapest overall, no mileage limit, simple at the end).
- You want a low monthly and a new car every 3 to 4 years: PCP (low payments, easy to swap at the end).
- You never want to own and want servicing bundled in: leasing (fixed monthly, hand the car back).
- You drive high or unpredictable mileage: HP or a personal loan (no mileage charges, ever).
- You have clean credit and want to own from day one: a personal loan (often the cheapest APR, no lender charge over the car).
Work out your own numbers
The cheapest choice depends on your price, deposit, term and mileage, so run your own figures. The calculators show the monthly and the total amount payable side by side.
Start on the main car finance calculator to compare all the options at once, or go straight to the PCP or HP calculator. For a lease, use the leasing calculator. To see the interest in pounds (the true cost), run any quote through the APR calculator.
Frequently asked
What is the difference between PCP, HP and leasing?
Is PCP or HP cheaper?
Which is best for high mileage, PCP or HP?
Which car finance lets you own the car?
Does leasing have the same rights as PCP and HP?
Can you hand a PCP or HP car back early?
Why is the PCP monthly lower than HP?
Work out your next step
Independent calculators — pick the one that fits your situation.