PCP, HP, leasing vs loan: the best way to finance a car

2/6/2026

When it comes to funding a vehicle in the UK, there is no one-size-fits-all solution. Different options such as PCP, hire purchase (HP), leasing and personal loans each come with their own strengths, commitments and costs. Knowing how they work and when one makes more sense than another helps you make a smarter financial decision when you finance a car.

This guide breaks down these four main ways to finance a car, explains how they differ, and highlights the key factors you should consider before signing any agreement.

What is PCP (Personal Contract Purchase)?

Personal Contract Purchase (PCP) is a way to finance a vehicle with lower monthly payments than traditional finance, because you defer a large portion of the cost until the end of the agreement.

Under a PCP deal:

  • You make an initial deposit followed by fixed monthly payments
  • The final value of the car (guaranteed future value, or GFV) is agreed up front
  • At the end of the term you can either return the car, pay the GFV to own it, or use any equity toward a new agreement

PCP is often attractive if you want lower monthly costs and the flexibility to choose what to do with the car at the end. However, there are restrictions such as mileage limits and condition standards, and you will not own the vehicle unless you pay the final balloon payment.

What is HP (Hire Purchase)?

Hire purchase is a straightforward way to buy a car over time.

With HP:

  • You pay a deposit followed by monthly instalments
  • The car is yours once the final payment is made
  • There are no mileage limits or condition restrictions during the agreement

HP works best when you want full ownership without restrictions. Monthly payments tend to be higher than PCP because you are paying off the entire value of the vehicle, but there is no final balloon payment and you end up owning the car outright.

What is leasing (Personal Contract Hire)?

Leasing — often referred to as Personal Contract Hire (PCH) — is effectively long-term rental.

With leasing:

  • You pay an initial rental followed by fixed monthly payments
  • The finance company owns the car throughout the contract
  • At the end you return the vehicle

Leasing appeals to people who like driving a newer car every few years and do not want to worry about resale value. Monthly costs can be competitive, but there are usually mileage and condition limits, and you never own the car.

What is a personal loan?

A personal loan allows you to borrow a set amount to buy the car outright.

With a personal loan:

  • You own the vehicle from the point of purchase
  • You repay the loan in fixed monthly instalments
  • No mileage or condition restrictions apply

Loans can give you full ownership from day one, and you can sell or modify the car whenever you like. Interest rates vary based on your credit profile, and monthly payments are typically higher than PCP because you are paying off the full value plus interest.

How these options compare

Ownership

  • PCP: Only if you pay the final value
  • HP: Yes, once all payments are completed
  • Leasing: Never
  • Loan: Immediately

Monthly cost

  • PCP: Usually the lowest
  • HP: Higher than PCP
  • Leasing: Often competitive
  • Loan: Depends on interest and amount borrowed

Restrictions

  • PCP & leasing: Mileage and condition limits
  • HP & loan: None

Which option is right for you?

There is no universal answer — it depends on your priorities:

  • If you want lower monthly payments and flexibility, PCP can be a good choice
  • If you want ownership without restrictions, HP or a personal loan might suit you better
  • If you prefer driving new cars and don’t care about ownership, leasing could be ideal

Understanding the differences and your own financial goals will help you choose the most suitable option when you finance a car.

How Rooster can support your purchase

Whether you decide to use PCP, HP, leasing or a loan, the Rooster app can help you throughout your car journey. Use Rooster to check MOT history, access vehicle valuation tools, find cheaper services, book MOTs and maintenance for up to 50% less, and manage breakdown cover and insurance all in one place.

Download the Rooster app to make smarter car decisions and take control of your ownership costs.

Download rooster QR code