Car Finance Calculator — PCP, HP & Loan Comparison

Car Finance Guide

What's the difference between PCP and HP?

Hire Purchase (HP): pay off the full car price plus interest over the term. At end: car is yours. Lower flexibility, higher monthly payments, you own the car at the end. PCP (Personal Contract Purchase): pay only the depreciation portion plus interest over the term. Final balloon payment ('Guaranteed Future Value' or GFV) if you want to keep the car. At end: 3 options — pay balloon and keep car, hand back at no cost (subject to mileage and condition), or part-exchange. Lower monthly payments than HP, since you're only financing the depreciation rather than the full car value, but you build no equity in the car unless you pay the final balloon.

What's the difference between Personal Loan and Dealer Finance?

Personal loan + cash purchase: borrow from bank/lender at potentially lower APR, then pay cash to dealer. Pros: typically lower APR than dealer finance (5-10% vs 7-12%). You own the car immediately — flexibility to sell, modify. No mileage restrictions. Stronger negotiating position with dealer (cash buyer). Cons: typically requires good credit. No 'final option' flexibility. Dealer finance pros: dealer may offer 0% APR on selected models. Convenience — done at point of sale. May come with discounted APR as an incentive to buy through the dealer rather than shop around.

What's the key thing to understand about True Cost of Car Finance?

Always compare TOTAL cost over the term — monthly payments alone are misleading. £25,000 car, 48-month PCP at 8.9% APR with £5,000 deposit, £10,000 GFV: monthly £320 × 48 = £15,360 + £10,000 GFV + £5,000 deposit = £30,360 total. Cash cost £25,000. Premium for financing: £5,360 over 4 years. Same car HP at 6.9% APR: monthly £495 × 48 = £23,760 + £5,000 deposit = £28,760 total. £3,760 premium — cheaper than PCP. Personal loan at 5.9% APR for £20,000: monthly £469 × 48 = £22,512 + £5,000 = £27,512.

When PCP Makes Sense?

PCP works best when: you change cars every 2-4 years. Want a newer car with lower monthly payments. Don't want depreciation risk. Predictable annual mileage well within limit. PCP works poorly when: you keep cars long-term (you pay balloon eventually anyway — usually borrowed at higher APR). High annual mileage (excess mileage charges escalate fast). Plan to modify the car (typically prohibited under PCP). Don't expect changes — the car company is a partner in your asset. Negotiating: dealer profit margins on PCP deals are often built into the APR or the balloon valuation, so it's worth comparing the total cost against a personal loan even if the headline monthly payment looks attractive.