HP vs PCP vs Lease Calculator UK 2026

The four ways to get a car in the UK

You want a new (or newer) car. Four paths sit in front of you: hire purchase, personal contract purchase, leasing, or buying outright. Each has a fundamentally different relationship between what you pay, what you own, and what it costs you in the end. Most people pick whichever gives them the lowest monthly payment - which is almost always PCP or leasing - and discover the rest of the cost much later.

This guide walks through what each option actually means, how to calculate the true cost, and which type of driver and financial situation each suits best.

Hire Purchase (HP)

Hire Purchase is the simplest form of car finance. You put down a deposit (typically 10%), then make fixed monthly payments over an agreed term (usually 24-60 months). At the end you pay a small "option to purchase" fee (often £0-£100) and the car is yours.

There is no balloon payment, no mileage restriction, and no end-of-contract decision to make. The only number that matters is the APR, because that determines how much interest you pay on top of the financed amount.

HP: pros

• Straightforward - no hidden end-costs or decisions
• You own the car at the end with no further payment
• No mileage restrictions
• Legal right to voluntary termination at 50% paid

HP: cons

• Higher monthly payments than PCP for the same car
• You carry depreciation risk (the car is yours once you've paid)
• You don't legally own the car until the final payment

Best for: Buyers who want to own the car, drive high mileage, or dislike financial complexity. HP is the most honest form of car finance.

Personal Contract Purchase (PCP)

PCP accounts for roughly 80% of new car finance in the UK. Monthly payments appear attractively low because you're not financing the full car - you're financing the predicted depreciation. The lender sets a Guaranteed Minimum Future Value (GMFV) - the estimated value of the car at the end of the term. Your monthly payments cover the gap between today's price and that future value plus interest.

At the end of the agreement you have three choices:

1. Hand back - return the car. Nothing more to pay (subject to mileage and condition).
2. Pay the balloon (GMFV) - keep the car by paying the final lump sum.
3. Part-exchange - if the car is worth more than the GMFV on the open market, use the equity as a deposit on a new PCP deal.

PCP: pros

• Lowest monthly payments of any finance type
• Flexibility at end (keep, hand back, or swap)
• Manufacturer PCP deals often have subsidised rates (0-3% APR promotions)
• Lender bears the risk if car is worth less than GMFV

PCP: cons

• Most expensive if you want to own the car (total cost > HP)
• Mileage limits - excess charges of 5-20p/mile
• End-of-contract damage inspection and charges
• Easy to get trapped in a cycle of never owning
• GMFV may not reflect market reality in either direction

Best for: Drivers who change car every 2-4 years, stay within mileage caps, and value flexibility over ownership.

Leasing (Personal Contract Hire - PCH)

Leasing is the simplest of the finance options to explain: you pay a fixed monthly rental for the use of a car, hand it back at the end, and have no claim to ownership at any point. It's structured around an initial rental (typically 3-9 months upfront) and then a monthly payment for the contract length (usually 24-48 months).

The monthly payment is calculated by the lease company based on the car's expected depreciation and a residual value, plus financing costs. Because the lease company retains ownership and recycles the car, they absorb the depreciation risk - which is why monthly costs can look very competitive on fast-depreciating vehicles.

What leasing does NOT include

Standard personal lease contracts are finance-only. These costs sit outside your monthly payment and can add substantially to the true cost:

• • Servicing and maintenance - all oil changes, tyres, and repairs are yours unless you pay for a maintenance package (typically +£30-80/month)
• • Excess mileage - 5-25p per mile over the agreed annual allowance. 5,000 extra miles x 10p = £500/year
• • Damage charges - assessed against BVRLA Fair Wear and Tear standards; small chips and light scratches are generally accepted
• • Gap insurance - if the car is written off, your insurer pays market value; the lease company wants the full outstanding rental liability. Gap insurance covers the shortfall (around £200-400 upfront)

Leasing: pros

• Often the lowest monthly payment for a given car
• Always driving a newer car under warranty
• No depreciation risk - hand it back and walk away
• Road tax included in most deals
• Business users: VAT-reclaim on commercial versions (BCH)

Leasing: cons

• No ownership - ever
• Early exit is very expensive (typically 50% of remaining rentals)
• Mileage caps and damage charges create uncertainty
• Maintenance complexity if not on a maintenance package
• Harder to get with poor credit - no asset for the lender to recover

Best for: Drivers who always want a new car, are confident about mileage, and value simplicity of returning and upgrading every 2-4 years.

Buying Outright

The simplest transaction: pay the full price, own the car immediately. No monthly commitment, no credit agreement, no lender involvement. The only ongoing costs are insurance, tax, fuel, and maintenance.

Buying outright is financially optimal only when the alternative use of your cash earns less than the finance APR. If you have £25,000 earning 5% in a savings account and could get a 4.9% HP deal, the numbers barely differ - but financing frees up capital. If savings earn 3% and HP is 9.9%, buying outright saves you roughly £5,000 in interest over 4 years.

The key metric is the net cost of depreciation: you pay the full price now but recoup the residual value when you sell. A car bought for £25,000 and sold five years later for £10,000 has a true cost of £15,000 (plus running costs). No finance product changes depreciation - it only changes how and when you pay for it.

Outright: pros

• Zero interest - the total cost is just the depreciation
• No mileage restrictions, no monthly commitment
• Full legal ownership from day one - you can sell anytime
• Greater negotiating power (cash buyer)
• Simpler - no credit agreements, no defaults risk

Outright: cons

• Large upfront capital requirement
• You bear all depreciation risk
• Ties up capital that could be deployed elsewhere
• You may access a worse car for the same budget vs financing

Best for: Cash-rich buyers who dislike debt, drive high mileage, or prefer reliable used cars where financing costs would exceed depreciation savings.

Making a fair comparison

The headline monthly payment is the worst way to compare these options. It optimises for affordability, not total cost. A fairer framework compares the cost of using the car for the same period by asking:

What did you actually spend to drive this car?

• HP: deposit + (monthly x months) + option fee = total paid. You own the car, so subtract what you sell it for to get true cost.
• PCP (hand back): deposit + (monthly x months). You own nothing at the end.
• PCP (buy): deposit + (monthly x months) + balloon. Subtract resale value for true cost.
• Lease: initial rental + monthly x remaining months. No residual value to recover.
• Outright: purchase price − eventual resale value.

Use our car finance comparison calculator to run these numbers for your exact figures. Enter the same car price across all four options and compare both total paid and cost per month.

Which option should you choose?

Getting the best deal: practical tips

• 1.

  Negotiate the car price first, finance second. The car price affects the total financed amount. Dealers often prefer to discuss finance monthly payment rather than price - always establish the OTR price separately before discussing terms.

• 2.

  Check the APR, not the monthly payment. A low monthly on a long term at a high APR costs far more than a higher monthly on a shorter term. Always calculate total amount payable.

• 3.

  Compare the GMFV against independent valuations. Check what cars of the same make, model, age, and mileage are selling for (Auto Trader, CAP HPI). If the GMFV is above market reality, you'll be stuck - the dealer knows this.

• 4.

  End of quarter deals are real. Dealers have registration targets - March, June, September and December often produce the best headline deals as manufacturers push finance incentives to shift metal.

• 5.

  Know your voluntary termination rights. Under the Consumer Credit Act 1974 (Section 99), once you've paid 50% of the Total Amount Payable on HP or PCP, you can voluntarily terminate, return the car, and walk away. This is a legal right regardless of what any contract says.

• 6.

  Get a settlement figure in writing before selling or remortgaging. The settlement figure settles the finance early and may differ from the remaining payments - lenders give a partial interest rebate calculated under the Rule of 78 or actuarial method (actuarial is fairer to you).