PCP vs HP vs Leasing: Which Car Finance Option Is Right for You?

If you’re thinking about getting a new car, chances are you’ve come across the terms PCP, HP and leasing. These are the three most common ways to finance a car in the UK. And while they might sound similar, they work in very different ways.

From ownership and monthly costs to flexibility and mileage limits, each option has its pros and cons. With so many choices, it’s no wonder drivers often struggle to decide which is best for their lifestyle and budget.

This guide breaks down exactly how the three options work, so you can make an informed decision between PCP vs HP vs leasing. We’ll also show how My Car Credit can help you find the right finance deal, whichever route you choose.

Understanding the three main car finance types

Before comparing them in detail, it’s useful to understand the basic principles of each finance type.

• PCP (personal contract purchase) – You pay a deposit, followed by monthly payments that cover the car’s depreciation, not its full value. At the end, you can either pay a final “balloon” payment to own the car, return it or trade it in for a new one.
• HP (hire purchase) – Similarly, you’ll pay a deposit and then monthly instalments. But these instalments gradually pay off the total cost of the car. Once the last payment is made, you own it outright.
• Leasing (personal contract hire) – You essentially rent the car for a set period (typically 2-4 years). You’ll pay an initial rental fee followed by fixed monthly payments, then return the car at the end. There’s no option to buy it.

It’s worth noting that PCP and HP are forms of car finance, meaning you’re borrowing money to fund a purchase, whereas leasing is technically a rental agreement.

How does PCP work?

A personal contract purchase (PCP) is one of the most popular car finance options in the UK because it offers flexibility and relatively low monthly payments.

How PCP works

1. Deposit – You usually pay around 10% of the car’s price upfront.
2. Monthly payments – You make fixed payments over a term (usually 2-4 years), covering the car’s depreciation rather than its total cost.
3. Optional final payment – At the end of the agreement, you can:

• Pay the Guaranteed Future Value (GFV) or “balloon payment” to own the car outright.
• Return the car to the finance company (as long as it’s within mileage and condition limits).
• Trade it in as a deposit on a new PCP deal.

Advantages of PCP

• Lower monthly payments compared to HP because you’re not repaying the entire cost of the vehicle.
• Flexibility at the end of the term. You can keep, return or upgrade the car.
• Access to newer cars more often, keeping you in warranty and up to date with the latest technology.

Disadvantages of PCP

• Mileage limits usually apply. Exceeding them can lead to additional charges.
• You don’t own the car unless you make the final balloon payment.
• Extra fees may apply if the car is returned with damage or excessive wear.

Ideal for: Drivers who like changing cars every few years and want flexibility without committing to long-term ownership.

How does HP work?

A hire purchase (HP) agreement is one of the simplest and most straightforward car finance options available.

How HP works

1. Deposit – Typically around 10% of the car’s price.
2. Monthly payments – You repay the full value of the car, plus interest, over an agreed period (usually 2-5 years).
3. Ownership – After the final payment, you automatically own the car.

Advantages of HP

• You own the car once all payments are made. There’s no large balloon payment at the end.
• No mileage restrictions, since ownership is the goal.
• Simpler terms, which are easy to understand and manage.
• Flexible finance duration to suit your budget.

Disadvantages of HP

• Higher monthly payments compared to PCP or leasing, since you’re financing the full cost.
• Less flexibility as you’re tied in until you’ve paid off the agreement.
• Depreciation is greater. Once owned, the car’s value will naturally decrease over time.

Ideal for: Drivers who plan to keep their car long-term and value ownership over flexibility, such as families or those who don’t frequently upgrade their vehicles.

How does leasing work?

Also known as personal contract hire (PCH), leasing differs from PCP and HP because you’re not buying the car. Instead, you’re renting it for a fixed period.

How leasing works

1. Initial rental fee – Usually equivalent to 3-6 months of payments upfront.
2. Monthly payments – Fixed payments for the agreed term, often 2-4 years.
3. Return the car – At the end, you hand the car back. There’s no option to buy.

Advantages of leasing

• Drive a brand-new car every few years without any hassle.
• Lower upfront cost than HP or PCP.
• Fixed monthly payments make budgeting simple.
• Maintenance packages often included for convenience.
• No need to worry about resale value or depreciation.

Disadvantages of leasing

• No ownership, regardless of how long you lease your car.
• Strict mileage limits. Exceeding them leads to extra charges.
• Early termination can be costly or difficult.
• Wear and tear penalties may apply when returning the car.

Ideal for: Drivers who want a new car every few years, prioritise convenience and low monthly costs, and don’t care about ownership.

PCP vs HP vs leasing: Side-by-side comparison

Quick takeaway:

• Want ownership? Go for HP.
• Want flexibility and choice? PCP might suit you best.
• Want convenience and low hassle? Leasing is ideal.

PCP vs HP vs leasing: Which is best for you?

There’s no single “best” option. It depends on your priorities, driving habits and financial goals. Here’s a quick guide to help match the right option to your lifestyle.

Best for flexibility: PCP

If you like the idea of changing cars regularly and want options at the end of the deal, PCP offers a mix of flexibility and affordability.

Example: Sarah is a commuter who loves driving newer models every few years. She chooses PCP so she can easily upgrade without worrying about selling her old car.

Best for ownership: HP

If you want to own your car outright after paying it off, HP is the clear winner. It’s ideal for those who see their car as a long-term investment.

Example: Mark is a family driver. He opts for HP because he plans to keep his car for many years and doesn’t want mileage restrictions.

Best for low monthly cost & convenience: Leasing

Leasing suits anyone who prioritises low upfront costs and zero ownership responsibilities. It’s popular among professionals and business users.

Example: Emma is a city-based freelancer who prefers leasing for predictable payments, included maintenance and the ability to upgrade every few years.

Still not sure? My Car Credit helps match drivers with a suitable option for their needs. Just get in touch.

Key things to consider before choosing a finance option

Above all, choosing between PCP, HP and leasing depends on what matters most to you. Is it ownership, flexibility or affordability?

• Choose HP if you want to own your car outright and avoid mileage limits.
• Choose PCP if you want flexibility and like changing cars regularly.
• Choose leasing if you want the lowest hassle and fixed costs for a brand-new car every few years.

Before deciding between PCP, HP or leasing, think about these key factors:

1. How long do you plan to keep the car?

• If you like to switch cars frequently, PCP or leasing makes more sense.
• If you’re happy to keep one car long-term, HP may be more cost-effective.

2. How much do you drive?

• PCP and leasing agreements typically include mileage limits. Exceeding them can cost extra.
• HP has no mileage restrictions, meaning it’s great for high-mileage drivers.

This is one of our 6 Things to Check Before Signing a Car Finance Agreement

3. What’s your budget?

• Leasing and PCP usually have lower monthly payments, but you’ll never own the car unless you pay extra with PCP.
• HP has higher payments, but you’ll own a valuable asset at the end.

Related: New Car Budget: How to Work Yours Out

4. How important is ownership to you?

• If owning a car matters, HP (or PCP with final payment) is the way to go.
• If you value driving new cars and avoiding depreciation, leasing is more convenient.

To find out more, check out Who Is the Legal Owner of a Car on Finance?

5. What’s your credit situation?

• All three options involve credit checks.
• PCP and HP are forms of finance, so approval depends on your credit profile.
• Leasing companies also perform checks, though requirements may vary.

Why choose My Car Credit for your car finance?

Even with our handy guide, choosing between PCP, HP and leasing can be overwhelming. That’s where My Car Credit can help.

As part of the UK’s largest motor finance network, we work with a panel of trusted lenders to find competitive, transparent car finance options that fit your circumstances. Here’s what you’ll benefit from:

• Access to multiple lenders for a wide range of PCP and HP deals.
• Transparent quotes with no hidden fees or jargon.
• Quick, online application process with a soft credit search initially (so your score isn’t affected). Lenders may perform a hard credit search when your application is processed.
• Personalised support from a friendly UK-based team.
• Expert guidance on whether PCP, HP or leasing is best for you.

Whether you want flexibility, ownership or simplicity, My Car Credit helps match you with the right deal. So, you can hit the road with confidence.

Get your free quote online today. It only takes a few minutes.

PCP vs HP vs leasing: FAQs

Is leasing cheaper than PCP or HP?

Monthly payments are often lower with leasing, but you’ll never own the car. PCP can also offer low payments, though there’s an optional final payment if you want to buy.

Can I buy the car after a lease ends?

No, leasing (PCH) doesn’t offer a purchase option. If you want the choice to buy, PCP is more suitable.

Which is better for bad credit: PCP or HP?

HP is often easier to get approved for with a lower credit score, as the lender has security in the car. PCP might require stronger credit due to the balloon payment.

Do PCP or HP agreements include insurance?

No, you’ll need to arrange your own insurance. Some dealers may offer packages, but it’s usually separate.

Can I end a PCP, HP or lease early?

Yes, but fees apply. With PCP or HP, you can voluntarily terminate after repaying 50% of the total amount owed in most cases. Ending your lease early can be more expensive and restrictive.

Does leasing affect my credit score?

Like other finance agreements, leasing involves a credit check, and missed payments could affect your credit rating. However, managing it well can help build your score.