Car finance calculator
On a £30,000 car with a £3,000 deposit at 8.9% over 48 months, a PCP costs £209 a month less than hire purchase — and £1,965 more in total if you keep the car. The deferred £12,000 is borrowed money the whole time.
How this is worked out
Both are repayment agreements on whatever is left after the deposit. Hire purchase repays all of it across the term. A PCP repays it only down to the final payment, so the monthly instalments are smaller — but interest is charged on the full outstanding balance every month regardless, and that is where the extra total cost comes from. The payment formula is the standard annuity one with the balloon discounted back to today; setting the balloon to zero collapses it to ordinary hire purchase, which the tests verify against the separately written mortgage engine to the penny.
A £30,000 car, £3,000 deposit, 8.9% APR over 48 months, with a £12,000 final payment
- After the deposit, £27,000 is financed.
- Hire purchase repays all £27,000 over 48 months, so the monthly payment is higher and there is nothing left to pay at the end.
- The PCP repays £27,000 down to £12,000 only, so the monthly payment is lower — but interest is charged on the whole outstanding balance throughout.
- Keeping the car means paying the £12,000 as well, and the PCP total then lands above the hire purchase total.
With the final payment set to zero this becomes an ordinary loan, and a test checks it then matches the loan and mortgage engines exactly — two implementations written separately, agreeing to the penny.
Why there is nothing to cite here
The APR is the one a dealer has quoted you, not one anybody publishes, so this cannot go out of date and has no external source to lean on. It shows its method instead.
What catches people out
- A PCP is cheaper every month and dearer overall. The deferred final payment is still borrowed money accruing interest for the whole term, so a lower monthly figure buys a larger total — and the balloon still has to be found at the end if you want to keep the car.
- The final payment is optional, but the alternatives are not free. Hand the car back and you have paid to use it and own nothing. Refinance the balloon and you start a new agreement, usually at a worse rate. Part-exchange and any equity depends entirely on what the car is really worth against the guaranteed figure.
- Mileage limits are part of the deal. PCP agreements set an annual mileage and charge for every mile over it, typically several pence each, which on a long commute can run to hundreds of pounds at handover. There is no such limit on hire purchase, because the car is yours.
- You do not own the car until the last payment on either agreement. Both are secured on the vehicle, so it cannot be sold without settling the finance and it can be repossessed. Once a third is paid there is some statutory protection under the Consumer Credit Act, but the car is still not yours.
- The rate is rarely the same on both in a showroom. This page holds everything else equal so you can see what the balloon alone does — which is the comparison you are not usually shown — but a dealer may quote a lower APR on the PCP precisely because it is the more profitable product.
Questions
Which is cheaper, PCP or hire purchase?
Monthly, the PCP. In total, hire purchase — assuming you keep the car. The difference is interest on the deferred balloon, which is charged for the entire term even though that capital is not repaid until the end.
If you intend to change the car every three years and never own one, that total is less relevant to you and a PCP may suit. What this page shows is the arithmetic; what happens at the end is your decision.
What is the balloon payment actually for?
It is the guaranteed minimum future value — the lender's estimate of what the car will be worth at the end, which they guarantee. During the agreement you are financing the depreciation, plus interest on the whole amount outstanding.
That guarantee has real value: if the car turns out to be worth less than the figure, that is the lender's problem and you can simply hand it back.
Should I put down a bigger deposit?
The arithmetic is easy to see — change the deposit above and watch the interest fall, because less is borrowed. Whether that is the best use of the money is a different question, and one this site does not answer.
Is 0% finance really free?
The finance is, if the rate is genuinely zero — set the APR to 0 here and the total equals the price. What is worth checking is whether the cash price is negotiable when finance is not taken, because a discount forgone is a cost that does not appear on any agreement.