Car finance advertising leads with monthly payments, and PCP dominates because its monthly figure is the lowest. But the monthly payment is only one part of the cost. PCP defers a large portion of the vehicle price as a balloon payment at the end, which means the total cost if you want to keep the car is often higher than Hire Purchase or a personal loan for the same amount. The question is not which option has the lowest monthly payment but which one costs least for the outcome you actually want.
This tool compares all three finance structures on the same vehicle price, deposit, and term, showing the monthly payment, total cost, total interest, and what you own at the end under each option. It also models the balloon payment decision on PCP and uses illustrative depreciation to show whether the car is likely to be worth more or less than the balloon at the end of the agreement. All figures are illustrative and depend on the inputs you provide.
At a Glance
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PCP has the lowest monthly payment, but at the same APR it has the highest total cost if you want to keep the car. Which option is cheapest overall depends on the rates you are offered.
PCP monthly payments are lower because you are only financing the depreciation portion of the vehicle price, with the remainder deferred as a balloon. If you return the car at the end, you have paid for the use of it and nothing more. If you want to keep it, the balloon payment pushes the total cost above HP at the same APR. Whether PCP also costs more than a personal loan depends on the APR gap between the two and the balloon percentage — the tool shows both scenarios side by side so you can test your specific numbers.
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A personal loan can cost less in total interest than PCP at certain balloon and APR combinations, even when the headline APR is higher.
PCP interest accrues on the full credit amount including the deferred balloon, which means total interest is higher than on HP at the same APR. A personal loan at a somewhat higher APR can still produce lower total interest than PCP when the balloon percentage is large enough to push PCP interest above the loan cost — but this is not automatic. At the default settings, the personal loan costs slightly more in total interest than PCP because the APR gap (9.9% vs 6.9%) outweighs the balloon effect. The tool shows the crossover threshold so you can see exactly where the balance tips for your inputs.
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What you own at the end differs fundamentally between the three options, and that affects the true cost of the next car as well as this one.
With a personal loan, you own the car outright from day one. With HP, ownership transfers after the final payment. With PCP, you own nothing at the end unless you pay the balloon. This matters beyond the current agreement: with HP or a personal loan, the car has a trade-in or sale value that can fund part of the next purchase. With PCP, you start the next agreement from scratch unless the car is worth more than the balloon, which the depreciation panel estimates using illustrative figures.
Interactive tool
Car Finance Comparator
Compare PCP, Hire Purchase, and a personal loan side by side on the same vehicle to see which costs less overall, which has the lowest monthly payment, and what you own at the end.
Your data stays private — nothing you enter is stored, transmitted, or accessible to anyone. All calculations run entirely in your browser.
PCP (Personal Contract Purchase)
Monthly payment
£0
You do not own the car unless you pay the balloon
Hire Purchase (HP)
Monthly payment
£0
You own the car after the final payment
Personal Loan
Monthly payment
£0
You own the car from day one
About this tool
What it compares
PCP, Hire Purchase, and personal loan on the same vehicle and term
Enter a vehicle price, deposit, term, PCP/HP APR, personal loan APR, and PCP balloon percentage. The tool calculates the monthly payment, total cost, and total interest for all three structures side by side. PCP shows both the return and keep scenarios. A winner card identifies the lowest monthly payment and the lowest total cost to own the car, which are typically different options.
Key features
Balloon breakdown, total cost bars, depreciation context, and equity comparison
The PCP detail panel breaks out the balloon amount and the cost of keeping versus returning. Horizontal bars compare total cost across all three options visually. An illustrative depreciation panel estimates the car value at the end of the term and compares it to the PCP balloon to show whether there is likely to be positive or negative equity. The equity panel explains what you own at the end under each structure.
How to use the car finance comparator
The comparison is most useful when the APR figures reflect what you would actually be offered. Manufacturer PCP and HP rates are often promotional and depend on the specific model and deal. Personal loan APRs depend on your credit profile. Using indicative or representative rates gives a broad comparison; using actual quoted rates gives a precise one.
Enter the vehicle price, deposit, and term
Enter the on-the-road price of the vehicle you are considering. The deposit applies equally across all three finance options. The term sets how many years the monthly payments run for. PCP agreements are most commonly 3 or 4 years. HP agreements typically range from 1 to 5 years. Personal loans are available at similar terms. All three options use the same term in this comparison so the monthly payment difference reflects the finance structure rather than a term difference.
Set the APR for finance and for a personal loan
The PCP/HP APR applies to both the PCP and HP calculations in this tool. In practice, PCP and HP may be offered at different rates on the same vehicle — manufacturer-supported promotional rates (such as 0% or low single-digit APRs) are often PCP-specific and may not apply to HP. If you have separate quotes for PCP and HP, run each comparison individually using the quoted rate. The personal loan APR is separate because unsecured lending rates are set independently of dealer finance. If you have a specific loan offer, use the APR from that offer rather than a representative figure from advertising.
Set the PCP balloon percentage
The balloon (also called the Guaranteed Minimum Future Value or GMFV) is the portion of the vehicle price deferred to the end of the PCP agreement. It is set by the finance provider based on the projected residual value of the vehicle at the end of the term. Typical balloon percentages range from 30% to 50% of the vehicle price for a 3-year agreement, declining for longer terms. A higher balloon means lower monthly payments but a larger final payment if you choose to keep the car.
Read the comparison cards, winner panel, and depreciation context
The three comparison cards show the monthly payment, total cost, and total interest for each option. The winner panel identifies which has the lowest monthly payment and which has the lowest total cost to own the car. The PCP detail panel shows the balloon amount and the cost of keeping versus returning. The depreciation panel uses an illustrative 15% annual depreciation rate to estimate whether the car will be worth more or less than the balloon at the end of the agreement, which determines whether there is equity to carry forward or not.
How PCP works and what you are actually paying for
A PCP agreement finances the difference between the vehicle price (minus deposit) and the balloon payment, not the full amount. The monthly payments cover this depreciation portion plus the interest charged on the total credit amount. PCP is typically available on new cars and selected manufacturer-approved used vehicles, while HP is available on both new and used cars from any source. At the end of the agreement, you have three options: return the car with nothing further to pay (subject to condition and mileage limits), pay the balloon amount to own it outright, or use any equity above the balloon as a deposit on a new PCP deal. The structure is designed to produce a lower monthly payment than HP or a personal loan, which is why PCP dominates car finance advertising.
The trade-off is that the total cost of ownership under PCP is typically higher than under HP at the same APR, because the outstanding balance declines more slowly. In a PCP deal, monthly payments reduce the balance from the full credit amount down to the balloon over the term, but the balloon portion remains outstanding throughout, generating interest every month. In an HP deal, the balance is paid down to zero, so interest falls progressively as the principal shrinks. The result is that total interest on a PCP deal is higher than on an HP deal at the same rate for the same vehicle. Whether PCP also costs more in total interest than a personal loan at a higher APR depends on the size of the APR gap and the balloon percentage — the crossover line below the comparison cards shows where the balance tips for your inputs.
The balloon payment decision at the end of PCP
The balloon payment is the amount you would need to pay to own the car at the end of the PCP agreement. Whether it makes financial sense to pay it depends on two things: what the car is worth at that point, and whether you have access to the funds or would need to borrow again to cover it. If the car is worth more than the balloon, you have positive equity: you can pay the balloon and own a car worth more than you paid, or trade the equity into a new deal. If the car is worth less than the balloon, you have negative equity: paying the balloon means paying more than the car is worth, and returning it is the more rational financial choice.
The depreciation panel in the tool estimates the car value at the end of the term using a simplified 15% annual depreciation rate and compares it to the balloon. This is illustrative: actual depreciation varies significantly by make, model, mileage, condition, and market conditions. Some vehicles hold their value better than others, and the GMFV set by the finance provider is designed to be conservative (below the expected market value) so that positive equity is the more common outcome. The panel shows whether the illustrative figures suggest positive or negative equity, which is a starting point for thinking about the balloon decision rather than a definitive valuation.
When a personal loan is cheaper than manufacturer finance
A personal loan finances the full purchase price (minus deposit) as a standard repayment loan. The car is bought outright with the loan funds and is legally yours from day one. The loan is unsecured, which means the car itself is not at risk if repayments are missed (though credit file damage and legal action for non-payment still apply). Personal loan APRs are typically higher than manufacturer PCP or HP rates, particularly for buyers with good credit who qualify for promotional dealer rates at 0% or low single-digit APRs.
Despite the higher APR, a personal loan can still produce lower total interest than a PCP deal at a lower rate. This happens because the personal loan pays down the full balance month by month, reducing the principal on which interest accrues, while PCP keeps the balloon on the balance for the entire term. The tool makes this comparison directly: adjusting the two APR sliders shows where the crossover is for a specific vehicle price and term. A personal loan also avoids the mileage restrictions and condition requirements that PCP agreements carry, which is relevant if you drive high mileage or want to modify the vehicle. The true daily cost of borrowing calculator can break down the loan interest into a daily figure if you want a more granular view of the cost.
The equity question: what you own at the end
The finance structure determines not just what you pay each month but what you own at the end of the agreement, and that has knock-on effects for the cost of the next car. With HP and a personal loan, you own the car after the payments are complete (or from day one for a loan). The car has a market value that can be realised by selling it or trading it in, and that value can fund part of the next purchase. With PCP, you own nothing at the end unless you pay the balloon. If you return the car and take a new PCP deal, you start the next agreement from scratch with a new deposit, a new set of monthly payments, and no equity carried forward (unless the car was worth more than the balloon).
Over multiple vehicle changes, this difference compounds. A buyer who uses HP or a personal loan for each car builds equity that reduces the cost of each subsequent purchase. A buyer who uses PCP and returns the car each time pays for the use of each vehicle but never builds any ownership value. Neither approach is inherently better: PCP suits people who want a new car every few years and prioritise a low monthly payment over ownership, while HP and personal loans suit people who want to own the car and benefit from its residual value when they sell or trade up. The equity panel in the tool explains this distinction plainly for each option.
Voluntary termination: a right that applies to PCP and HP but not personal loans
Under Section 99 of the Consumer Credit Act 1974, if you have a PCP or HP agreement you have a statutory right to voluntarily terminate it once you have paid at least 50% of the total amount payable. You can return the car and walk away from the remaining payments, subject to the vehicle being in reasonable condition. This right exists regardless of whether the car is in positive or negative equity and does not require the finance provider’s agreement — it is a legal entitlement. The total amount payable includes all monthly payments, the deposit, any fees, and for PCP the balloon payment, so reaching the 50% threshold on a PCP deal typically takes longer than on HP because the total is higher.
This right does not apply to personal loans. A personal loan is a separate unsecured credit agreement: if your circumstances change you can repay the loan early (subject to any early repayment charge, capped at up to 58 days’ interest under the Consumer Credit Act), but there is no equivalent mechanism to return the car and cancel the remaining debt. This is a meaningful practical difference between dealer finance and a personal loan, and is worth factoring into the decision alongside the cost comparison — particularly if there is any chance your circumstances could change during the term.
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All of our calculators and planning tools in one placeFrequently asked questions
What is the balloon payment and why does PCP have one?
The balloon payment (also called the Guaranteed Minimum Future Value or GMFV) is the amount set by the finance provider that represents the projected value of the car at the end of the PCP agreement. It is the portion of the vehicle price that is not covered by your monthly payments. The balloon is deferred to the end of the agreement, which is what makes PCP monthly payments lower than HP or a personal loan: you are financing only the depreciation portion (the difference between the vehicle price, minus your deposit, and the balloon) through your monthly payments, rather than the full amount.
At the end of the agreement, you choose whether to pay the balloon and keep the car, return the car and walk away, or use any equity (the difference between the market value and the balloon) as a deposit on a new agreement. The balloon is “guaranteed” in the sense that the finance provider will accept the car back at that value regardless of its actual market price, provided the car meets the agreed mileage and condition terms. If the car is worth more than the balloon, you benefit from the equity. If it is worth less, the finance provider absorbs the shortfall when you return it. This guarantee is the core risk-transfer mechanism in PCP: the finance provider takes the residual value risk, and the buyer gets certainty about the worst-case end-of-agreement position.
Why is the PCP monthly payment lower but the total cost often higher?
PCP monthly payments are lower because they cover only the depreciation portion of the vehicle, not the full purchase price. However, interest on a PCP deal accrues on a balance that declines more slowly than HP. Monthly payments reduce the outstanding balance from the full credit amount toward the balloon, but the balloon portion remains on the balance for the full term, generating interest throughout. By contrast, HP pays the balance down to zero, so the interest cost falls more steeply each month. The result is that total interest on a PCP deal is higher than on an HP deal at the same APR.
If the car is returned at the end of PCP, the total cost is the deposit plus all monthly payments, which is typically less than the HP or personal loan total because you are not paying for the full car. If the car is kept by paying the balloon, the total cost is the deposit plus monthly payments plus the balloon, which is almost always higher than HP at the same APR. The tool shows both PCP scenarios (returned and kept) alongside HP and personal loan so the cost of each outcome is visible. The relevant comparison depends on what you plan to do at the end: if you always intend to keep the car, HP or a personal loan is typically cheaper. If you always intend to return it, PCP may represent a lower total cost of use.
Can I use a personal loan to buy any car?
Yes. A personal loan is unsecured borrowing that can be used for any purpose, including buying a car from a dealer, a private seller, or at auction. There are no mileage restrictions, condition requirements, or end-of-agreement obligations. The car is yours outright from the point of purchase because it is bought with cash (from the loan), not financed through a credit agreement secured against the vehicle. This is the key practical advantage of a personal loan over PCP or HP: complete flexibility in how the car is used, modified, and disposed of.
The trade-off is that personal loan APRs are typically higher than manufacturer finance rates, particularly for buyers with excellent credit who qualify for promotional dealer offers. For buyers with less strong credit profiles, the difference in APR may be smaller or may even favour the personal loan, since dealer finance providers apply their own credit assessments that may result in higher rates for applicants with adverse credit history. The tool allows you to set different APRs for the two finance types, so testing the comparison at different rate levels shows where the crossover sits for your circumstances. The car financing with bad credit guide covers the options in more detail for borrowers with a limited or adverse credit history.
What happens if I exceed the mileage limit on a PCP agreement?
PCP agreements include an annual mileage allowance, typically set at the start of the agreement at a level such as 8,000, 10,000, or 12,000 miles per year. If the car is returned at the end of the agreement and the total mileage exceeds the agreed allowance, an excess mileage charge is applied for every mile above the limit. The charge varies by provider and vehicle but is commonly between 3p and 30p per mile, with premium vehicles typically at the higher end. On a 3-year agreement with a 10,000 mile allowance, exceeding by 5,000 miles per year would incur a charge on 15,000 excess miles, which could cost between £450 and £4,500.
The excess mileage charge only applies if the car is returned. If the balloon is paid and the car is kept, the mileage is irrelevant to the finance agreement (though it affects the car’s market value). For drivers who consistently exceed 12,000 miles per year, PCP may not be the most cost-effective structure because the excess charges can erode or eliminate the monthly payment advantage. HP and personal loans carry no mileage restrictions, so the total cost is fixed regardless of how many miles the car covers. This is a practical consideration that the tool does not model directly but is worth factoring into the decision alongside the financial comparison.
Which option is best if I have bad credit?
The rates available for all three finance types depend on credit profile, and the relative comparison can change depending on the rates offered to a specific individual. Manufacturer PCP and HP deals at headline promotional rates are typically only available to applicants with good or excellent credit. For applicants with adverse credit history, the dealer finance rate may be significantly higher than the promotional figure, and in some cases a personal loan from a specialist lender may offer a more competitive rate than the dealer’s subprime finance provider. The tool allows you to set different rates for each type, so entering the actual rates offered to you rather than representative figures gives a meaningful comparison.
For borrowers with a limited or adverse credit history, a bad credit loan used to purchase a car outright may offer a simpler structure than PCP or HP, particularly if the finance provider’s credit assessment results in a high APR on the dealer deal. The car is owned outright from day one, there are no end-of-agreement complications, and the loan can be repaid early if circumstances improve. The true daily cost of borrowing calculator is useful for comparing two specific loan offers at different APRs to see what the total cost difference actually amounts to in daily terms. It is also worth noting that PCP and HP agreements carry voluntary termination rights under the Consumer Credit Act that personal loans do not — if your circumstances might change during the term, this legal protection may be a relevant factor alongside the cost comparison.
Squaring Up
PCP, HP, and a personal loan each produce a different financial outcome on the same vehicle, and the option with the lowest monthly payment is almost never the option with the lowest total cost. The comparison in this tool makes that trade-off visible: PCP suits people who prioritise a low monthly payment and are comfortable returning the car at the end, while HP and personal loans suit people who want to own the vehicle and benefit from its residual value.
The balloon percentage and the relative APRs are the two variables that have the largest effect on which option comes out ahead on total cost. Testing different combinations in the tool is more informative than relying on a single comparison, particularly since the promotional APRs in dealer advertising may not reflect the rate you would actually be offered. Using actual quoted rates produces a comparison that reflects your specific situation rather than a generalised illustration.
Explore all loan guides and tools
Everything in one place, across secured loans, debt consolidation, and home improvementsUpdate log: July 2026
What changed in this update
The comparator tool now shows a crossover context line below the winner panel, identifying the personal loan APR threshold at which total interest matches PCP — making it easier to see when a personal loan beats dealer finance and when it does not. The deposit slider now caps dynamically to the vehicle price, preventing impossible input combinations. Accessibility improvements include WCAG AA colour contrast across all card backgrounds and text, programmatic label associations for all sliders, screen reader announcements when results update, and visible keyboard focus indicators.
Article text has been updated to more precisely describe when a personal loan costs less than PCP (which depends on the APR gap and balloon percentage rather than being a general rule), to clarify how PCP interest accrues on a declining balance rather than a static one, and to reflect the current excess mileage charge range of 3p to 30p per mile. A new section covers voluntary termination rights under the Consumer Credit Act 1974, which apply to PCP and HP but not personal loans. The tool intro, SEO metadata, and illustrative notes have also been refreshed.
This tool is for illustrative purposes only and does not constitute financial advice. All calculations use the APR rates and balloon percentage entered and assume standard amortisation with interest on the full credit balance. Actual PCP, HP, and personal loan quotes will vary by lender, vehicle, credit profile, and specific deal terms. PCP balloon/GMFV figures are set by the finance provider and may differ from the percentage used in this tool. Depreciation uses a simplified 15% annual rate for illustration only: actual vehicle depreciation varies by make, model, mileage, condition, and market conditions. Manufacturer finance rates shown in advertising are typically available only to applicants meeting specific credit criteria. PCP mileage charges are illustrative and vary by provider. PCP and HP agreements are regulated credit agreements carrying voluntary termination rights under the Consumer Credit Act 1974; personal loans do not carry equivalent vehicle-return rights. This tool does not constitute a recommendation of any specific finance product or provider. Actual outcomes will depend on your individual circumstances.
