Plain-English guide
Types of Car Finance: PCP, HP, Leasing & Loans
PCP, HP, leasing and personal loans — what each costs, who each suits, and which lets you own the car.
There are four main types of car finance in the UK: PCP, HP, leasing (PCH) and a personal loan. They differ on three things — whether you own the car, whether there's a final balloon payment, and how much you pay each month.
Here's each type in plain English, with the trade-offs, so you can pick the one that fits how you drive and what you want at the end.
The four types of car finance, at a glance
PCP, HP, leasing and a personal loan are the four ways to finance a car. The fastest way to choose is to decide whether you want to own the car at the end.
| Type | Own it? | Balloon? | Best for |
|---|---|---|---|
| PCP | Optional | Yes (GMFV) | Low monthly, changing car often |
| HP | Yes, at the end | No | Owning it, keeping it simple |
| Leasing | No | No | Never owning, a fixed budget |
| Personal loan | From day one | No | Owning outright, no mileage limit |
PCP (Personal Contract Purchase)
PCP is car finance where your monthly payments cover the car's expected drop in value, not its full price. At the end you choose to pay a balloon and keep it, hand it back, or part-exchange.
Because you only finance the depreciation, the monthly payment is the lowest of the four — but you don't own the car unless you pay that final balloon. PCP suits drivers who like a low monthly and a new car every few years. Work out a PCP deal on the PCP calculator.
HP (Hire Purchase)
HP is car finance where you pay off the whole price in equal monthly instalments, and own the car once the final payment is made. There's no balloon.
You finance the full price rather than just the depreciation, so HP costs more per month than PCP — but the car is yours outright at the end, with nothing left to decide. HP suits drivers who want to keep the car. Run the numbers on the HP calculator.
Leasing (PCH)
Leasing, or Personal Contract Hire, is long-term rental — you pay a fixed monthly amount to use the car, then hand it back. You never own it.
Lease payments cover use and depreciation only, so the monthly can be low, and servicing is sometimes bundled in. There's a mileage limit and a condition standard to stay inside, or you pay charges. Estimate a lease on the leasing calculator.
Personal loan
A personal loan is money you borrow from a bank to buy the car outright, so you own it from day one. The car isn't tied to the loan.
Because you own the car immediately, there's no mileage limit, no condition standard, and you can sell whenever you like. The monthly sits between PCP and HP for most people, and a strong credit score gets the best rate. Compare a loan with car finance on the loan calculator.
Which type is cheapest for you?
HP or a personal loan is usually cheapest overall if you keep the car; PCP and leasing keep the monthly lower but cost more to own. It comes down to whether you want ownership and how often you change cars.
On a £20,000 car at 9.9% APR, HP runs about £452 a month and £23,695 in total, while PCP with an £8,000 balloon is about £314 a month but £25,086 to own. Put your own price, deposit and term into the main calculator and compare all four side by side.
Frequently asked
What are the types of car finance?
What is the difference between PCP and HP?
Which type of car finance lets you own the car?
Which type of car finance is cheapest?
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