# PCP vs HP vs car leasing — which car finance is cheapest?

> Compare · Last reviewed 26 May 2026

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## Quick answer

PCP is a finance agreement with an optional 'balloon' payment to own the car at the end. HP is a loan secured on the car — you own it at the end. Personal leasing is long-term rental — you never own the car.

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The cheapest monthly payment is usually PCP or leasing, but the total cost over time and what you end up with at the end are very different. The right product depends on whether you actually want to own the car and how predictable your mileage is.

## PCP vs HP or leasing

| Criterion | PCP | HP or leasing |
| --- | --- | --- |
| Do you own the car? | Optional — pay the balloon to keep it | HP: yes (after final payment) / Leasing: no |
| Typical deposit | 10% (minimum varies) | HP: 10%+ / Leasing: 3, 6 or 9 monthly payments upfront |
| Typical term | 2–4 years | HP: 3–5 years / Leasing: 2–4 years |
| Mileage limit | Yes (excess mileage charges) | HP: no / Leasing: yes |
| Condition charges at end | Yes (fair wear and tear standard) | HP: no / Leasing: yes |
| Servicing & MOT | Your responsibility | Usually your responsibility |
| Voluntary termination right | Yes — after paying 50% of the total | HP: yes (50% rule) / Leasing: no (early termination fee) |

## When PCP suits

- You want a lower monthly payment than HP
- You like swapping car every 3–4 years
- You're happy with mileage limits and end-of-deal condition checks

## When HP or leasing suits

- Hire Purchase: you definitely want to own the car at the end
- Hire Purchase: your mileage is high or unpredictable
- Leasing: you treat the car as a service and want maintenance bundled in (with a maintenance pack)

## Frequently asked questions

### Is PCP the same as leasing?

No. PCP includes an option to buy the car at the end by paying the Guaranteed Minimum Future Value (the 'balloon'). Leasing has no purchase option — you hand the car back.

### What is the 50% voluntary termination rule?

Under section 99 of the Consumer Credit Act 1974, you can end a regulated PCP or HP agreement once you have paid (or agree to pay) at least half of the total amount payable. The car must be returned in fair condition.

### Is PCP a good way to buy an electric car?

It can be — manufacturers often subsidise PCP rates on EVs, and the residual value risk sits with the finance company rather than you. Always check the total cost over the term, not just the monthly payment.

## Sources

- [Legislation.gov.uk — Consumer Credit Act 1974](https://www.legislation.gov.uk/ukpga/1974/39)
- [Consumer Credit Act 1974, s.99](https://www.legislation.gov.uk/ukpga/1974/39/section/99)

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Independent UK money guidance from [Money Guide](https://moneyguide.org.uk). Information only — not regulated financial advice.