PCP vs PCH — what’s the difference, and which is right for you?

Personal Contract Purchase and Personal Contract Hire are the two most popular ways people in the UK finance a new car. From the outside they look similar — a deposit, monthly payments, and a car on your drive. But they work quite differently, and choosing the wrong one can cost you.

Here’s a plain-English breakdown of what each involves and when each one makes more sense.

Personal Contract Purchase (PCP)

PCP is a finance agreement where you borrow money to buy the car, but defer a large chunk of the cost — known as the Guaranteed Minimum Future Value (GMFV) or “balloon” payment — to the end of the agreement.
At the end of the term (typically 2–4 years), you have three options:

• Pay the balloon and own the car outright. You’ve effectively bought it, with the monthly payments acting as a deferred purchase.
• 
  Hand the car back. If the car is worth roughly what the GMFV predicted, you walk away with nothing to pay and nothing to keep.
• 
  Use any equity as a deposit on your next car. If the car is worth more than the GMFV — which sometimes happens in strong used car markets — that difference is yours to roll forward.

Because you’re technically borrowing the full value of the car, PCP is a credit product. Your monthly payment is calculated on the difference between the car’s purchase price and its predicted future value, plus interest.

Personal Contract Hire (PCH)

PCH is a long-term rental. You pay a fixed monthly amount, drive the car, and hand it back at the end of the contract. That’s it. There is no balloon payment, no option to buy, and no question about what happens to equity. You never own the car.

Because you’re paying purely for the use of the car rather than borrowing against its value, PCH payments are often lower than PCP for an equivalent vehicle — particularly on cars with strong residual values. The finance company retains the ownership and the risk of the car’s future value.

Which is right for you?

PCH tends to suit people who want the lowest monthly payment, are happy to never own the car, drive reasonably predictable mileage, and simply want a reliable, new vehicle without the admin of ownership.

PCP tends to suit people who want the option to own eventually, value the flexibility of the end-of-term decision, or are considering a vehicle that might hold its value unusually well.

For electric vehicles specifically, PCH is worth looking at carefully. EVs have faced some residual value uncertainty, which has made lenders cautious about GMFVs on PCP deals — PCH removes that risk from you entirely and passes it to the finance company.

Neither option is inherently better. What matters is matching the structure to how you actually use and think about cars.
If you’d like independent, unbiased guidance on which approach makes most sense for your situation, we’re here to help. We have no affiliation with any lender or manufacturer — our job is to help you make the right choice for you.