Do I own the car on hire purchase or PCP?

On hire purchase you own the car once you've made the final payment, having paid off its full price. On PCP the finance company keeps ownership until you decide at the end whether to make the final payment or return the car.

Which is cheaper each month, hire purchase or PCP?

PCP usually has lower monthly payments, because you pay off only part of the car's value and the balloon payment is deferred. Hire purchase payments are higher, as you repay the whole car price by the end.

Do I get good title if I buy a car on HP privately?

A private buyer who buys a car on hire purchase or conditional sale in good faith usually gets good title under the Hire Purchase Act 1964. This protection doesn't cover dealers or logbook loans.

What is a balloon payment on a PCP car?

A balloon payment is the large final sum due at the end of a PCP deal, which you pay if you want to keep the car. Otherwise you can hand it back or swap it for another car.

HP vs PCP: Car Finance Explained

How HP works

With hire purchase, you pay off the whole car, and once the last payment clears, it's yours to keep. You pay a deposit up front, then make monthly payments until the agreement ends. There's no balloon payment to decide on at the end, so you don't have to hand the car back or swap it.

Until that final payment, the finance company owns the car. That means it isn't yours to sell or part-exchange yet. Before you sign, ask for the total amount payable, including interest, and compare it with the cash price.

If you're a private buyer and the car was bought on HP or conditional sale, you usually get good title if you acted in good faith. That doesn't cover dealers or logbook loans, so check the car's finance record before you pay. A Finance & Stolen Check costs £4.99, and the Full Check at £9.99 also covers finance. Check car finance

How PCP works

With PCP, your monthly payments are lower because you're paying for the car's expected drop in value, not the whole car. You pay a deposit, then monthly payments and interest. The finance company owns the car until the final payment.

The balloon payment is the large sum due at the end. It's what's left if you want to keep the car. When the deal finishes, you choose one of three options: - Pay the balloon and keep the car. - Hand the car back. - Swap it for another car, with the old one's value going towards the next deal.

Watch the mileage limit. PCP deals set a yearly mileage allowance. Go over it and you'll pay extra per mile when you hand the car back. The average UK car covers about 7,100 miles a year, so check the allowance suits how you drive. Buying a used car? Check it isn't still on finance before you hand over money. The Finance & Stolen Check costs £4.99.

Finance and buying used cars

Finance shows on a check because the lender owns the car until the last payment. That's true for hire purchase (HP) and PCP alike, even if the seller has used it for years. A finance record isn't automatically a deal-breaker, but it means you check before you pay. The Finance & Stolen Check costs £4.99, and the £9.99 Full Check also covers finance.

Ask the seller to prove the car is clear. On HP, the finance company owns the car until the final payment. On PCP, the lender stays the owner until you pay the final balloon payment or hand the car back. The V5C shows the registered keeper, not the legal owner, so it won't settle this on its own.

Private buyers often have some protection. Under the Hire Purchase Act 1964, a private buyer who buys a car on HP or conditional sale in good faith usually gets good title. This doesn't cover dealers or logbook loans. If you're unsure where you stand, Citizens Advice can help.

HP vs PCP: car finance explained