Is HP or PCP cheaper in the long run?

HP is often cheaper overall because you spread the full cost of the car and own it at the end without needing to make a large final payment. PCP may have lower monthly payments but often ends with a balloon payment if you want to own the car, increasing total cost.

What is the cheapest way to finance a car in the UK?

The cheapest way depends on your priorities. Hire Purchase (HP) usually has higher monthly payments but lower overall cost, especially if you want to own the car. PCP has lower monthly payments but could be more expensive if you buy the car at the end. PCH is often cheapest per month but you never own the car.

What is the cheapest monthly car finance option?

PCH (Personal Contract Hire) usually offers the lowest monthly payments, but you never own the car and must return it at the end of the contract. It can be cost-effective for drivers who want a new car every few years without the need for ownership.

Is used car finance cheaper than new car finance?

Yes, used cars generally cost less, which can lead to smaller loans and lower interest charges. HP is often the cheapest way to finance a used car because you own the car at the end and avoid mileage or damage charges.

How can I reduce the cost of car finance?

Choose a cheaper or used car, increase your deposit, shorten the loan term, shop around for competitive APR, and check for hidden fees. These steps could reduce monthly payments and total cost.

What is the cheapest way to finance a car?

Written by Joe Achillies Updated 10 Jul 2025

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Affordability can often be the number one priority for people when financing a car. The most common car finance options include Personal Contract Purchase (PCP), Hire Purchase (HP) and Personal Contract Hire (PCH).

But which is the cheapest way to buy a car on finance? We’ve compared these three options to help you determine the best choice for your situation, plus other tips for reducing costs when getting a car on finance.

Factoring in monthly vs total cost

If you’re weighing up the cost of car finance, it’s crucial to think long-term. The lowest monthly option might seem like the best deal upfront, but once you factor in interest and any final payments, it could end up costing you more overall.

The best option for you really comes down to your priorities, and your finances. If you’re on a tight budget month-to-month, you might prefer lower monthly payments, even if it means paying more overall.

But, if saving money in the long run is more important, you might be better off with a deal that has higher monthly payments but a lower total cost.

Always look at the monthly cost and the total amount payable before making a decision. Let’s look at these both in more detail.

Cheapest car finance options: monthly vs total

Hire Purchase (HP)

With HP, you are paying a loan for a car you’ll own at the end. You pay off the entire value of the car on a monthly basis, plus interest, over a fixed term. At the end of the contract, you own the car outright.

HP spreads the full cost of the car over the loan term, so monthly payments are usually higher than both PCP and PCH on the same car. But, it can be cheaper overall because you don’t have to pay a large balloon payment to own the car like with PCP, and there are no mileage limits or charges for wear and tear to worry about either.

Summary: Higher monthly payments could mean a lower overall cost.

Personal Contract Purchase (PCP)

Costs with PCP can vary because you have three options at the end: return the car, trade it in, or keep it by paying a large sum known as the “balloon payment”.

On a monthly basis, you typically pay lower monthly payments than HP because you’re only paying for the car’s depreciation while you use it, not the full price.

But, what matters is what you do at the end of your agreement. If you return the car at the end, PCP can be cheaper overall, but bear in mind you may have to pay fees if you go over the agreed mileage limit or for any wear and tear while you’ve been driving it.

If you want to keep the car, you’ll need to pay the large balloon payment, which can be a significant amount and can make this finance option more expensive overall.

Summary: Mid-range monthly payments, potentially highest overall cost if you buy; lower overall cost if you return the car.

Personal Contract Hire (PCH)

PCH is a leasing option where you never own the car. You’re just paying for a long-term car loan.

Since you only pay for the car’s depreciation over the contract term, the monthly payments are usually the lowest. But, you must return the car at the end of the contract, so you don’t have anything to show for the money you’ve spent at the end.

Though it’s typically cheaper monthly, over time, PCH can be costly because you never build equity and might end up in a cycle of continuous leasing, which can add up.

Summary: Lowest monthly payments, mid-range overall cost.

	PCP	HP	PCH
Monthly payments	Lower than HP	Higher than HP	Generally the lowest option
End-of-term option	Buy the car, return it or trade it in	Own the car outright	Return the car
Ownership	Optional (you have to pay the balloon payment)	Full ownership after final payment	No ownership, you return the car
Best for	Those who want lower monthly payments and flexibility at the end	Those who definitely want to own the car outright	Those who want to drive a new car regularly and don’t care about ownership

What's the cheapest way to finance a used car?

The cheapest way to finance a used car long-term can often be HP. You’ll own the car at the end, and there are no mileage or wear-and-tear fees to worry about. Depreciation can be slower on used cars, which makes it less likely to lose value quickly. Since the car holds its value better, you might get more for it if you sell it at the end of the contract.

Slower depreciation is also a good thing for PCP or PCH, because cars that hold on to their value well typically have lower monthly payments. But, you’ll still face mileage and damage limits at the end, and you’ll need to pay a large balloon payment if you want to keep the car on a PCP deal.

With all finance deals, t is important to consider the costs involved. Because used cars usually cost less, you’ll need to borrow a smaller amount, which can mean paying less interest overall. But, it’s important to remember that interest rates for used cars can sometimes be higher than for new cars, because they’re seen as riskier for lenders.

General tips for cheaper car finance

Regardless of the type of car finance you choose, there are some ways you can lessen your repayments. To reduce the overall cost of car finance, consider these key factors:

Choose a cheaper car – Opting for a used car or a lower-spec model could reduce the total amount you need to borrow and therefore save you money.
Increase your deposit – If you can afford it, a larger upfront deposit might lower the amount you need to borrow, which could reduce your interest charges.
Shorten the loan term – A shorter loan term means higher monthly payments. But, you’ll pay less interest, which usually means cheaper overall.
Compare interest rates – It could be a good idea to shop around for the lowest APR, as even a small difference in interest could save you significant amounts.
Check for fees – Be aware that some deals may have high admin fees or things like early repayment fees that can increase costs. Always check the T&Cs first.

Conclusion

The cheapest car finance option for you depends on what you can afford short term and long term.

If you're looking for ownership and long-term savings, HP is usually the cheapest car finance option for both new and used cars, if you’re comfortable with larger monthly payments. It’s straightforward, and you don’t have to worry about mileage limits or the car’s condition, since you won’t be handing it back.

PCP can work well if you want lower monthly payments and plan to return the car at the end. But if you decide to buy it, it can be more expensive overall due to the balloon payment. And, if you return it, you might have to pay fees if there’s any damage or you’ve gone over the mileage.

PCH is typically the cheapest monthly option, but it’s not ideal if you want to build equity or own a car. It suits drivers who just want access to a new car every few years without the commitment of ownership.

Remember, a lower monthly repayment might seem like the cheapest option, but it could end up costing you more overall. It’s really important to factor in the total cost too.

Ready to explore car finance deals? Get your free quote today to see your options.