Compare PCP, HP, and lease monthly payments side by side
Car finance is now the most popular way to buy a vehicle in the UK, with around 90% of new cars purchased on some form of finance agreement. The three main options -- PCP (Personal Contract Purchase), HP (Hire Purchase), and leasing (PCH - Personal Contract Hire) -- each work differently and suit different circumstances. HP is the simplest to understand: you borrow the vehicle price minus your deposit, pay fixed monthly instalments, and own the car outright at the end. Your monthly payments are the highest of the three options because you are paying off the full balance, but you build equity with every payment. PCP is the most popular choice for new cars. You pay lower monthly instalments because a significant portion of the cost (the "balloon" or Guaranteed Minimum Future Value) is deferred to the end of the agreement. At that point, you choose: pay the balloon to own the car, hand it back with nothing more to pay, or use any equity as a deposit on a new PCP deal. The trade-off is that your total cost of finance is higher if you eventually pay the balloon. Leasing (PCH) means you are essentially renting the car. Monthly payments cover the depreciation over the agreement term, and you return the vehicle at the end. You never own the car, but your monthly outgoings are predictable and you avoid the risk of depreciation. This calculator compares all three options side by side so you can make an informed decision based on your budget and priorities.
To compare car finance options: 1. Enter the vehicle price. This is the on-the-road price including VAT, delivery, and any options. You can find this on the manufacturer's website or the dealer's listing. 2. Enter your deposit. A larger deposit reduces your monthly payments across all three finance types. Typical deposits range from 10% to 30% of the vehicle price. 3. Set the APR (Annual Percentage Rate). This is the interest rate charged on your finance. Check dealer websites for representative APRs, or contact your bank for personal loan rates as a comparison. 4. Choose the term length. Most car finance runs for 24, 36, 48, or 60 months. Longer terms mean lower monthly payments but more interest paid overall. 5. Set the balloon payment percentage for PCP. This is typically 25-40% of the vehicle price. A higher balloon means lower monthly payments but a larger lump sum to pay if you want to own the car at the end. 6. Compare the results. Look at both the monthly payment and the total cost for each option. The cheapest monthly payment is not always the best deal overall.
Each finance type uses a different calculation: **HP (Hire Purchase)** uses the standard annuity formula, the same as a mortgage: Monthly payment = r x F / (1 - (1+r)^(-n)) Where r = monthly interest rate (APR / 12 / 100), F = amount financed (price - deposit), n = number of months. Total cost = (monthly payment x n) + deposit. **PCP (Personal Contract Purchase)** modifies the annuity to account for the deferred balloon: Monthly payment = r x (F - B/(1+r)^n) / (1 - (1+r)^(-n)) Where B = balloon payment (vehicle price x balloon percentage / 100). The balloon's present value is subtracted from the financed amount, reducing monthly payments. Total cost = (monthly payment x n) + deposit + balloon. **Lease (PCH)** uses a simplified depreciation-plus-finance calculation: Monthly payment = (F - residual) / n + (F + residual) x (APR / 100 / 24) Where residual = vehicle price x 40% (estimated residual value). The first term covers depreciation; the second covers the finance charge. Total cost = (monthly payment x n) + deposit. Note: you do not own the car at the end. For example, a GBP 25,000 car with GBP 5,000 deposit at 7.9% APR over 48 months: HP monthly is approximately GBP 488, PCP monthly (30% balloon) is approximately GBP 356, and lease monthly falls between the two.