Around 80% of new cars sold in the UK are now financed rather than bought outright. The three dominant products — Personal Contract Purchase (PCP), Personal Contract Hire (lease) and Hire Purchase (HP) — look similar at the showroom but produce very different total costs depending on how you drive and what you do at the end. This guide explains the maths in 2026.
PCP: deposit + 24-48 monthly payments + a final 'balloon' payment if you want to keep the car. Monthly payments are lower than HP because you only pay for the car's depreciation, not its full value. Three end-of-term choices: hand back, pay balloon to keep, or part-exchange equity into a new PCP.
Lease (PCH): deposit + 24-48 monthly payments. You never own the car. At the end you simply hand it back. Lowest monthly cost of the three for the same car.
HP: deposit + 24-60 monthly payments. You own the car at the end. Highest monthly cost because you pay the full purchase price plus interest.
PCP and Lease both lock you into an annual mileage. Excess mileage charges of 5-15p/mile (sometimes higher on premium brands) apply to anything over.
8,000 miles/year is typical baseline; 12,000 the next step; 15,000+ usually requires a custom quote. Underestimating mileage can cost £1,000+ at handback. HP has no mileage cap because you own the car.
PCP 4-year, 10k miles, 9% APR: £3,000 deposit, £350/month, £14,000 balloon. Total if walk away: £19,800. Total if buy: £33,800.
Lease 4-year, 10k miles: £3,000 deposit + 47 × £400 = £21,800. No ownership. HP 4-year, 9% APR: £3,000 deposit + 48 × £640 = £33,720. You own a 4-year-old £15,000-£17,000 car.
Lease: you want a new car every 2-4 years, predictable mileage, no resale hassle. The simplest product and often the cheapest per mile if you change cars frequently.
PCP: you want flexibility — keep, return or upgrade. Useful if your circumstances might change. Worst-case (return) is similar to lease; best-case (kept and resold above balloon) gives equity for the next car.
HP: high-mileage drivers, those who want to keep the car long-term, or those who like owning outright. Cheapest in total cost over 7-10 years if you keep the car.
On all three products, the headline 'monthly payment' is what dealers move on. APR, deposit contribution, mileage band and the final balloon (PCP) all flex.
Get quotes from at least three dealers and a broker (Carwow, Leaseloco, Auto Trader's PCP comparison). Manufacturer 'finance contributions' often only apply if you take their finance — push for the contribution and a competitive APR.
PCP: voluntarily terminate after paying 50% (statutory right under Consumer Credit Act). Lease: usually pay 50%+ of remaining payments — much more punitive.
On any finance product, often yes — if the car is written off, your insurer pays current market value, which can be less than the finance settlement amount.
Like any credit agreement — kept up to date, it builds positive history. Missed payments damage your file.
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