PCP vs HP vs cash car finance: the real cost of buying a used car

You’ve found a used car you like. The dealer runs through the numbers: cash, HP, or PCP. They all get you the keys, but the total cost and what you own at the end are completely different. Here’s the plain-English version, with real numbers so you can see exactly what you’re signing up for.

The three ways to pay, in plain English

Cash is exactly what it sounds like. You pay the full price upfront. No monthly payments, no interest, no mileage limits. You own the car from day one.

HP (Hire Purchase) means you borrow the full price (minus any deposit), pay it back monthly with interest, and own the car once the last payment clears. Think of it like a loan secured against the car. Until you’ve paid it off, the finance company has a claim on it.

PCP (Personal Contract Purchase) is different. You borrow most of the price, pay lower monthlies, and at the end you have three choices: hand the car back, pay a large final payment (called the balloon or Guaranteed Future Value) to keep it, or part-exchange it for something else. You never own the car unless you pay that balloon.

A real-world example: £12,000 used car

Let’s say you’re looking at a three-year-old hatchback priced at £12,000. You have £1,200 for a deposit. You’re offered 8% APR on both HP and PCP over 36 months. Here’s how the numbers stack up.

Cash

• You pay £12,000 now.
• Total outlay: £12,000.
• But if that £12,000 was sitting in a savings account earning 4% AER, you’d earn roughly £480 a year, or about £1,440 over three years. So the opportunity cost brings your effective cost to around £13,440.

HP

• Deposit: £1,200
• Amount financed: £10,800
• Monthly payment: about £340
• Total monthly payments: £12,240
• Total cost including deposit: £13,440
• You own the car outright at the end.

PCP

• Deposit: £1,200
• Amount financed: £10,800
• Agreed balloon (GFV): £5,000
• Monthly payment: about £215
• Total monthly payments: £7,740
• Total cost if you keep the car (pay the balloon): £1,200 + £7,740 + £5,000 = £13,940
• Total cost if you hand it back: £8,940, and you own nothing.

So HP and cash are neck and neck on total cost. PCP costs about £500 more if you keep the car, because you’re paying interest on the balloon for the whole three years. But your monthly payment is £125 lower, which is why PCP feels cheaper. The catch is that if you hand it back, you’ve spent nearly £9,000 and have no car to show for it.

What you actually own at the end

With cash, the car is yours. No strings. You can sell it, modify it, or drive it until the wheels fall off.

With HP, you own the car once the final payment clears. Until then, you can’t sell it without settling the finance first. But at the end, it’s yours, free and clear.

With PCP, you own nothing unless you pay the balloon. If you hand it back, you walk away. If you part-exchange, any equity (if the car is worth more than the balloon) can go towards your next car. If the car is worth less than the balloon, you hand it back and the finance company takes the hit – as long as you’ve stuck to the mileage and condition limits.

The real cost differences (and hidden extras)

Interest: HP and PCP both charge interest. Cash doesn’t, but you lose the chance to earn interest elsewhere. PCP often has a higher effective interest rate than HP because you’re paying interest on the balloon amount for the whole term.

Fees: Both HP and PCP often come with an arrangement fee, usually £100–£300. Some dealers waive it. PCP also has excess mileage charges (typically 6p–15p per mile over your limit) and charges for damage beyond fair wear and tear. HP has no mileage limits.

Depreciation: With PCP, you’re only paying for the depreciation during your contract, plus interest. That’s why the monthly is lower. With HP, you’re paying off the whole car, so you build equity. With cash, you’ve already paid the whole car, so you wear the depreciation yourself.

Flexibility: HP gives you full ownership. You can keep the car as long as you like. PCP ties you to a mileage limit and a contract end date. If you want to change cars every two or three years, PCP is designed for that. If you want to keep a car for ten years, HP or cash is better.

Who each option actually suits

Cash suits you if…

• You have savings and don’t want monthly payments.
• You plan to keep the car for a long time.
• You’re buying an older or cheaper car where finance fees and interest would add a big percentage to the price.
• You can negotiate a better price by paying cash (though this is less common than it used to be).

HP suits you if…

• You want to own the car at the end.
• You do high mileage and don’t want to worry about excess charges.
• You plan to keep the car for more than three or four years.
• You want to modify the car (PCP usually forbids modifications).
• You’re buying a used car that’s too old for PCP – many lenders won’t do PCP on cars over five to seven years old.

PCP suits you if…

• You want the lowest possible monthly payment.
• You like changing cars every two or three years.
• You do low mileage (under 10,000 miles a year).
• You’re not bothered about owning the car.
• You want a newer car than you could afford on HP.
• You’re happy to stick to the mileage and condition rules.

A quick decision checklist

Ask yourself:

1. Do I want to own the car at the end? If yes, rule out PCP unless you’re happy to pay the balloon.
2. How many miles do I do a year? If more than 12,000, PCP will be expensive.
3. How long will I keep the car? Under three years, PCP makes sense. Over five years, HP or cash.
4. Can I afford the HP monthly? If not, PCP might be your only route to a newer car, but go in with your eyes open.
5. Do I have savings? If yes, compare the finance APR with what your savings earn. If savings earn less than the APR, cash is cheaper.
6. What’s the total cost, not just the monthly? Add up deposit, monthly payments, balloon, and fees.

The bottom line

PCP gives you the lowest monthly payment, but you’re essentially renting the car’s depreciation. Hand it back and you own nothing. HP costs more each month, but you end up with an asset you can sell or keep. Cash is the cheapest overall if you have the money and don’t mind tying it up, but it’s not always possible, and sometimes a low-rate HP deal can be a smart use of someone else’s money.

There’s no universal right answer. It comes down to your mileage, how long you keep cars, and whether ownership matters to you. Work out the total cost for each option, not just the monthly, and you’ll make a confident choice.

When you’re ready to make that change, UpCars.uk is a good place to look – every car is checked over properly before it’s listed, so you can focus on the finance decision rather than the car’s history.