Two very different ways to finance the same car
Personal Contract Purchase (PCP) and Hire Purchase (HP) are the two most common ways to finance a car in the UK, and they can produce noticeably different monthly payments for exactly the same vehicle, deposit and interest rate — which is why comparing them side by side, as the calculator above does, matters more than looking at either one in isolation. Both are forms of secured lending against the vehicle, both typically require a deposit, and both charge interest on the amount financed, but they split the cost of the car very differently across the term.
How Hire Purchase works
With HP, you finance the full difference between the car's price and your deposit, spread across the whole term, and by the final payment you own the car outright with nothing left to pay. Because the entire remaining value of the car is being financed and repaid, monthly payments are typically higher than the equivalent PCP deal, but there's no large final payment looming at the end, and no decision to make about the car's future once the term is up — it's simply yours. This makes HP a relatively simple, predictable product, well suited to anyone who wants to own the car outright at the end and isn't especially drawn to the flexibility PCP offers.
How PCP works, and what the GFV actually is
PCP takes a different approach: a portion of the car's value, known as the Guaranteed Future Value (GFV) or optional final payment, is set aside and deferred to the end of the agreement rather than being paid off monthly. You only finance and repay the difference between the car's price (minus your deposit) and that deferred GFV during the term, which is why PCP monthly payments are usually noticeably lower than HP for the same car. At the end of the agreement you have three choices: hand the car back (provided it's within any agreed mileage and condition limits, with no further payment due beyond that), pay the GFV to keep the car (effectively converting the remaining balance into ownership), or trade in any equity the car has built up (if it's worth more than the GFV) towards a deposit on a new agreement. The calculator above shows the total cost of the "pay the GFV to keep it" route, since that's the only way to directly compare PCP's total cost against HP's, where ownership is the whole point.
Why the "cheaper" monthly payment isn't the full story
PCP's lower headline monthly payment is genuinely attractive, and it's a big part of why PCP has become the dominant way people finance new cars in the UK. But it's important to understand that you're not paying less for the car overall — you're deferring a chunk of the cost to the end, where it either has to be paid to keep the car, or it disappears along with the car itself if you hand it back. If ownership at the end of the term matters to you, comparing PCP's total cost (monthly payments plus the final payment) against HP's total cost, as this calculator does, gives a much fairer picture than comparing the monthly payments alone.
Mileage limits and condition charges
One feature specific to PCP that doesn't apply to HP is the mileage allowance built into the agreement, since the GFV is calculated based on an assumed mileage and condition at the end of the term. Exceed the agreed mileage, or return the car with damage beyond fair wear and tear, and you'll typically be charged for the difference when you hand it back — sometimes a significant amount if the excess mileage is substantial. If your annual mileage is unpredictable, or tends to run high, it's worth either negotiating a higher mileage allowance upfront (which will reduce the GFV and raise your monthly payment slightly) or considering HP instead, since ownership from day one removes any handback condition risk entirely.
Which one actually suits you
There's no universally better option between the two — it genuinely depends on your priorities. If you like changing your car every few years, value lower monthly payments, and are comfortable with mileage limits, PCP's flexibility is well suited to that pattern. If you intend to keep the car for a long time after the finance ends, drive high or unpredictable mileage, or simply prefer the certainty of straightforward ownership without a final decision point, HP (or an outright purchase using savings or a personal loan) is usually the more cost-effective route over the long run. Whichever you're leaning towards, always compare the representative APR, total amount payable, and any option-to-purchase or documentation fees across multiple providers rather than focusing on the monthly figure a dealer first quotes you.
For related reading, see our guides to Personal Loan Repayment Calculator.