Car finance cost UK 2026: PCP vs HP vs loan

If you keep the car, hire purchase is usually slightly cheaper at the same APR because you are repaying the balance faster and paying interest on less of it for less time. On our worked example — a £28,000 car, £3,000 deposit, £25,000 over 48 months at 6.9% APR — hire purchase totals £31,574 against £33,012 for a PCP where the £11,500 balloon is paid. But PCP APRs are typically lower: the FCA records an average of 5% on PCP against 12% on used-car HP, and at 5% the PCP total falls to £31,649. Compare the APR and the total payable, not the monthly.

The FCA’s lender survey puts the weighted average APR at 5.9% in the new-vehicle segment, 13% in the used-vehicle segment and 33% in the sub-prime subset of the used market. PCP on a new car averages 5% and used-car hire purchase averages 12%. Manufacturer-subsidised 0% deals are real but selective — 19% of new-car agreements written between 2019 and 2022 were at 0% APR. For comparison, the Bank of England put the effective rate on all new personal loans at 9.09% in March 2026, with £25,000 loans in a 6.2–7.2% band.

Sections 99 and 100 of the Consumer Credit Act 1974 give you a statutory right to end a regulated hire purchase or PCP agreement, return the car and owe nothing further, provided you have paid one-half of the total price and have taken reasonable care of the vehicle. If you have paid less than half, you must make up the difference to reach that halfway point. Total price includes interest, fees and the balloon, so the point arrives later than people expect: about month 22 of 48 on our HP example, but about month 36 of 48 on the PCP. It does not apply to personal loans or personal contract hire.

The guaranteed minimum future value is the lender’s estimate of what the car will be worth at the end of a PCP, deferred out of your monthly payments and payable only if you want to keep the car. You can avoid it by handing the car back, which is what the “guaranteed” part protects: if the car is worth less than the GMFV, that is the lender’s problem, not yours. On our example, handing back costs £21,502 over four years and leaves you with nothing. The FCA notes that with average new-vehicle advances above £28,000, balloon payments are likely to be large, and that customers unable to afford them often refinance — which keeps the car but increases the total cost of owning it.

It depends entirely on the two rates in front of you. A personal loan makes you a cash buyer and the car is yours from day one, with no mileage cap and no balloon — but you also lose the Consumer Credit Act section 75 protection that applies where the lender is connected to the supply of the goods, and you lose the voluntary termination right. On our example a 7.2% loan totals £31,720 against £31,574 for 6.9% hire purchase: effectively a tie. Against a 0% or 5% manufacturer PCP, the loan loses; against 33% sub-prime hire purchase, it wins by a wide margin if you can get one.

You pay an excess mileage charge, calculated in pence per mile at a rate written into your individual agreement and settled at the end when you hand the car back. There is no published UK average rate, so the only reliable figure is the one in your own contract. The mileage cap exists because it is what lets the lender fix the guaranteed minimum future value — a higher agreed mileage produces a lower GMFV and therefore a higher monthly payment. If you consistently drive more than the cap allows, hire purchase or a personal loan carries no mileage restriction at all.

You are if the settlement figure your lender quotes is higher than what the car would sell for. It is common in the first half of an agreement, and more common on PCP than HP because PCP payments service depreciation rather than repay the balance. On our worked example the PCP balance at month 24 is £18,700 against £13,333 on the equivalent hire purchase. To check, ask your lender for a settlement figure in writing and compare it with current valuations for your exact car, age and mileage. Handing a PCP back at the end of the term is the one point at which the GMFV protects you from a shortfall.

The FCA banned discretionary commission arrangements — where a broker could raise your interest rate to earn more commission — from 28 January 2021, and in March 2026 published PS26/3 setting up two redress schemes for agreements struck between 6 April 2007 and 1 November 2024. It identified 12.1 million eligible agreements, an average payout of around £830 and total redress of about £7.5 billion. On 2 July 2026 the Upper Tribunal suspended parts of the scheme, and while suspended lenders do not have to calculate or pay compensation under those parts. Check the FCA’s consumer pages for the current position; you do not need a claims company to complain to your lender.