How the car finance calculator works
Both hire purchase (HP) and personal contract purchase (PCP) are secured on the car: you borrow the price minus your deposit and repay it with interest in fixed monthly payments. The difference is what happens at the end.
- HP: your monthly payments pay off the whole amount borrowed. After the last payment (and any option-to-purchase fee), the car is yours.
- PCP: part of the amount borrowed is held back as an optional final payment, called the guaranteed future value (GFV) or balloon. You pay interest on the whole amount, but your monthly payments only cover the rest. At the end you can pay the balloon and keep the car, hand it back, or part-exchange it.
The calculator converts the APR into a monthly rate, then uses the standard loan formula. For PCP, the balloon is treated as due at the end of the term.
HP payment = L × r ÷ (1 − (1 + r)^−n)
PCP payment = (L − B ÷ (1 + r)^n) × r ÷ (1 − (1 + r)^−n)
Here L is the amount borrowed, B the balloon and n the number of months. Your quote may differ slightly if the lender adds fees, or if the final payment falls a month after the last monthly payment.
Worked example: £25,000 car, £3,000 deposit, 9.9% APR, 4 years
You borrow £22,000 over 48 months. The monthly rate is (1.099)^(1/12) − 1 = 0.79%.
| HP | PCP (£10,000 balloon) | |
|---|---|---|
| Monthly payment | £552.47 | £380.33 |
| Final payment | £0 | £10,000 |
| Total payable to own it | £29,518.58 | £31,255.60 |
| Interest | £4,518.58 | £6,255.60 |
PCP is about £172 a month cheaper, but costs around £1,700 more if you keep the car, because you pay interest on the £10,000 balloon for the full four years. If you hand the car back instead, you've paid £21,255.60 for four years' use.
HP or PCP: which is cheaper?
If you want to own the car and keep it for years, HP is usually cheaper overall at the same APR. PCP suits people who like to change car every three or four years and want lower monthly payments, as long as they stay within the agreed mileage and keep the car in good condition. With PCP:
- You agree an annual mileage. Go over it and you'll pay an excess mileage charge per mile if you hand the car back.
- Damage beyond fair wear and tear is charged when you return the car.
- If the car is worth more than the GFV at the end, that difference (equity) can go towards your next deposit.
Your right to hand the car back early
Under the Consumer Credit Act 1974, you can end an HP or PCP agreement early by "voluntary termination" once you've paid half of the total amount payable, including any balloon and fees. If you've paid less than half, you can still hand the car back but must pay the difference up to 50%. You can also settle the finance early at any time, and you'll get a rebate of some of the interest.
Tips before you sign
- Compare the total amount payable, not just the monthly payment. A longer term lowers payments but adds interest.
- A "representative APR" is the rate at least 51% of successful applicants get. Your rate can be higher.
- A bigger deposit cuts both the monthly payment and the total interest.
- Get a quote for an unsecured personal loan too. Our loan calculator shows the monthly cost. With a loan you own the car from day one.
- Budget for running costs as well. The fuel cost calculator and EV charging cost calculator show what it costs to drive.
Frequently asked questions
How much is a £20,000 car on finance per month?
With no deposit at 9.9% APR, HP on £20,000 over 4 years costs about £502 a month and £24,108 in total. PCP with an £8,000 balloon costs around £365 a month, but you'd pay £8,000 at the end to keep the car.
Is PCP or HP cheaper?
At the same APR, HP is usually cheaper overall if you want to own the car, because with PCP you pay interest on the balloon for the whole term. PCP has lower monthly payments and suits people who plan to change car every few years.
What is a balloon payment on PCP?
It's the optional final payment, also called the guaranteed future value (GFV). It's the lender's estimate of what the car will be worth at the end. You pay it to keep the car, or hand the car back and walk away.
Can I hand back a car on finance early?
Yes. Once you've paid half of the total amount payable, the Consumer Credit Act lets you end an HP or PCP agreement by voluntary termination, as long as the car is in reasonable condition.
What APR is typical for car finance?
It varies with your credit history, the car and the dealer. Always compare the APR and the total amount payable on written quotes, as dealer offers and manufacturer deals can differ a lot.
Last reviewed October 2026 using 2026/27 figures. This calculator gives an estimate for guidance only.