Car Finance Calculator (PCP/HP/Loan)

The three main car finance options in the UK are Personal Contract Purchase (PCP), Hire Purchase (HP) and personal loans. PCP has low monthly payments because you only finance the depreciation, with a large optional final "balloon" payment to own the car. HP spreads the full cost over fixed monthly payments with no balloon, and you own the car at the end.

With PCP, you typically put down a 10% deposit, pay monthly for 3-4 years, then choose to make the final payment, hand the car back or use any equity as a deposit on a new deal. Annual mileage limits (usually 8,000-12,000 miles) apply, with excess mileage charges of 5-15p per mile. HP has no mileage restrictions.

Personal loans from banks can be cheaper than dealer finance in total cost because there are no arrangement fees and you own the car outright from day one. This calculator compares all three options side by side, showing monthly payments, total cost of ownership and the effective APR for each.

PCP explained in depth. Personal Contract Purchase is the most popular UK car finance product, accounting for ~80% of new car finance. You pay an initial deposit (usually 10-20%), monthly payments for 24-48 months, then choose one of three options at the end: (1) pay the Guaranteed Future Value (GFV) balloon to own the car outright, (2) hand the car back with no further cost (subject to mileage and condition), or (3) part-exchange the equity (current market value minus GFV) into a new PCP deal. The Annual Mileage you agree at the start matters — exceed it and you pay an excess mileage charge of 5-30p per mile.

Hire Purchase vs PCP — which to choose? HP is simpler: you pay deposit + monthly payments that include all the car's value (no balloon), and you own it at the end after a final 'option to purchase' fee (usually £1-£99). HP monthly payments are higher than PCP for the same car, but the total cost is usually lower because you're not financing the entire car's value (just the depreciation, plus interest on the balloon you'll either pay or hand back). Choose HP if you want to own the car long-term and keep payments simple. Choose PCP for lower monthly payments and the flexibility to change every 3 years.

The mis-sold car finance scandal. Between 2007 and 28 January 2021, many dealers earned higher commission by quoting customers higher interest rates — 'Discretionary Commission Arrangements' (DCAs). The FCA banned DCAs from 2021. In October 2024, the Court of Appeal ruled in Johnson v FirstRand Bank that this practice was unlawful where the commission was not properly disclosed. The Supreme Court is expected to rule in 2026 on whether mass compensation must be paid — estimates range from £6 billion to over £30 billion. If you took out PCP or HP between 2007 and 2021, you may be eligible for a refund plus 8% statutory interest. Check with your lender (Black Horse/Lloyds, Motonovo, Close Brothers, BMW Financial Services, Mercedes-Benz Financial, etc.).

Voluntary Termination (VT) — your statutory right to walk away. Under section 99 of the Consumer Credit Act 1974, you can terminate a PCP or HP agreement once you have paid (or are willing to pay) 50% of the total amount payable (including interest, deposit, and the GFV balloon). The car is collected, you owe nothing further (subject to fair wear and tear). VT is reported to credit agencies similarly to a settled account, not as a default — so it has minimal impact on your credit score. This is invaluable if your circumstances change (job loss, relocation) and you cannot afford the payments.

GAP insurance after the FCA reforms. Guaranteed Asset Protection insurance covers the gap between your motor insurance payout (which is based on current market value) and your outstanding finance balance if the car is written off or stolen. New cars depreciate 20-30% in the first year, so the finance balance can easily exceed the car's value. The FCA paused all GAP sales in February 2024 over fair value concerns — most policies were paying out only 6% of premiums. After insurers reformed pricing, GAP sales restarted at lower prices (typically £150-£300 for a 3-year policy). It's worthwhile on new PCP deals where you'll be in negative equity for years; less useful on used HP or older cars.

PCP, HP, or personal loan — which fits you? PCP: lowest monthly payments, lowest commitment, ability to walk away or upgrade every 3 years. Best if you want a newer car and don't mind not owning. HP: higher monthlies but you own at end, simple structure. Best for keeping cars long-term. Personal loan: lowest total cost typically, you own immediately, no mileage limits. Best for ownership and flexibility but no PCP-style upgrade path.

PCP balloon payment explained. The 'Guaranteed Future Value' (GFV) is the balloon — what the car is forecast to be worth at end of agreement. You pay deposit + monthly payments covering the depreciation (price minus GFV). At end: pay GFV to own (often £6-£15k), hand back (within mileage), or part-exchange equity (current value minus GFV) into new PCP. Most people part-exchange — never building real equity.

Voluntary Termination — your get-out card. Under the Consumer Credit Act 1974, you can VT a PCP or HP agreement once you've paid (or willing to pay) 50% of the total amount payable (including interest and the balloon). The car is collected, you owe nothing further (subject to fair wear and tear). Reported to credit agencies as a settled account — not a default. Powerful escape route if circumstances change.

The mis-sold car finance scandal (2007-2021). Many dealers earned higher commission by quoting customers higher interest rates ('discretionary commission arrangements'). The FCA banned DCAs in 2021. The Court of Appeal ruled in Johnson v FirstRand Bank (Oct 2024) that this practice was unlawful when commission wasn't disclosed. Supreme Court expected to rule in 2026 on mass compensation — potentially £6-30bn industry-wide. Check with lenders (Black Horse, Motonovo, Close Brothers) — eligible refunds plus 8% statutory interest.