Car finance terminology

PCP is a increasingly popular method to fund your vehicle. It offers great flexibility combined with fixed low monthly payments. At the start of your agreement your car's optional final payment is calculated based on an agreed mileage. This is commonly referred to as a balloon payment.

With PCP, you do not have to commit to buying the car from the outset. You can use it for an agreed period of time usually between 2 to 5 years and then decide what you would like to do. At the end of the agreement you have several options...

  • Purchase the car by paying the optional final payment
  • Part exchange your car using the equity you may have towards the next car
  • Subject to mileage and condition return the car with nothing more to pay


  • Low Risk (there is a minimum guaranteed future value)
  • Flexible Deposit (typically from 0-50%)
  • Low fixed monthly payments (ideal for budgeting)
  • A better car (choose a newer and higher specification car with lower payments)

Hire Purchase is a straight forward way of spreading the cost of your vehicle, making budgeting easier by combining fixed monthly repayments and a fixed interest rate. There is no mileage restriction with HP. Deposit options are flexible and it is set at the start of the agreement and the remaining balance with the interest is repaid over an agreed period, typically between 1-5 years


  • Flexible Deposit (usually 0-50%)
  • Set Monthly Payments (making budgeting simple)
  • Flexibility (no mileage restriction)
  • Equity (you own the car at the end of the term)

Lease purchase is also known as hire purchase with a balloon payment. It is an ideal way to finance your vehicle if you want lower payments compared to standard hire purchase. In order to reduce monthly instalments a deferred final payment or balloon is offset to the end of the agreement, you do have the option to pay a lump sum to own the car out right.

In principle, the term and deposit options remain the same as hire purchase.

At the end of the agreement you have a number of options:

  • Purchase the car by paying the deferred balloon
  • Part exchange the car, using any equity towards your next car
  • Sell the car privately and retain any equity once the balloon has been paid
  • Refinance the balloon payment


  • Low deposit (typically 0-50%)
  • Low monthlypayments (perfect for budgeting)
  • Flexibility (no mileage restriction)
  • A better car (newer or higher specification car with low monthly payments)

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