Buying a used car on finance – PCP vs Hire purchase.

If you’re in the market for a second-hand car, you may want to use car finance to spread the cost. Car finance is one of the most popular ways to fund your next car purchase but how do you know which form of finance is right for you? Both Hire Purchase (HP) and Personal Contract Purchase (PCP) are great ways to finance your next car but it can be hard to know which is the most suitable. This guide looks at both in more detail and helps you decide which is best for your circumstances.

How does Personal Contract Purchase work? 

PCP is a really flexible form of secured loan which allows borrowers to get a car and make low monthly payments back to the lender. Low monthly payments are offered due to the structure of this finance and instead of spreading the full cost of your car into monthly payments, you pay off part of the cost and leave much of the loan till the end. This is known as a final payment or balloon payment and must be paid if you wish to keep the car at the end of the deal. Car finance is always subject to status and PCP for people with bad credit may see higher interest rates so it’s worth considering first. If you don’t wish to keep the car, you can choose to hand the car back to the dealer or use any positive equity in the deal towards a newer car on finance. 


  • Low monthly payments.
  • More flexibility at the end of the deal.
  • Don’t have to own the car.
  • Smaller deposits accepted.


  • You will need to set an agreed annual mileage and keep the car in good condition as you won’t own it during the agreement. 
  • If you want to keep the car, the final balloon payment can be thousands of pounds to pay. 
  • They tend to work best on more expensive cars and larger loan amounts. 

Is Hire Purchase better?

Hire Purchase is also a form of secured loan but it’s a lot simpler than PCP and has less restrictions. The lender still owns the vehicle throughout the agreement, which can last between 3-5 years but there’s no large balloon payment to take ownership of the car. Instead, there is a small option to purchase fee, which is similar to your monthly payments, to pay at the end of the deal to become the automatic legal owner of the vehicle. The value of your chosen car is split into equal monthly payments with interest and both the repayments and interest will be fixed so you know exactly what you’ll be paying throughout the agreement. 


  • You’ll own the car at the end of the deal, without a large payment and you can keep it or sell the car on. 
  • Less restrictions such as no mileage limits or damage charges.
  • Can be a good option for bad credit applications as it’s a secured loan. 
  • Term length scan be tailored to your monthly budget. 


  • If you fall behind on your payments, the lender can take the car away from you as you won’t own it till the end. 
  • You can’t sell or modify the car during the agreement.
  • Higher monthly payments than other finance options
  • It can be an expensive option for short term financing. 

Which is the right choice for me? 

The right car finance agreement depends on your personal circumstances. No two finance agreements will ever be the same and each is created for the individual applicant. PCP tends to be better for those who aren’t bothered about owning the car at the end of the deal and want to change their car more regularly. Whereas hire purchase can mean higher payments but there’s no restrictions to abide by and you can own the car at the end of the agreement.