Most HP vs PCP guides are written for someone with a clean credit file, so they compare monthly payments and end-of-agreement options and leave it there. If you have missed payments, a default, a CCJ or an IVA on your record, the more useful question is which of the two a lender is actually likely to approve.
The short answer is hire purchase. HP is usually the easier of the two to get with bad credit, and the rest of this guide explains why, where PCP can still work, and what improves your chances with either.
If you want the basics of car finance first, our full car finance guide covers how each agreement works. This page is the detailed comparison for people whose credit history is part of the decision.
Hire purchase (HP) in a nutshell
With hire purchase, the lender buys the car and you pay it back, plus interest, in fixed monthly instalments over an agreed term, commonly two to five years, though some lenders go longer. You can put down a deposit, though many lenders will consider an application without one.
Every payment goes towards the full price of the car. When the last instalment is paid, along with any small option-to-purchase fee set out in the agreement, the car becomes yours with nothing more to decide. There is no mileage cap and no condition inspection at the end, because you are not handing the car back.
The trade-off is a higher monthly payment than PCP on the same car, since you are repaying all of its value rather than part of it.
PCP in a nutshell
Personal contract purchase splits the cost of the car in two. At the start, the lender sets a guaranteed minimum future value (GMFV), which is its estimate of what the car will be worth at the end of the agreement. Your monthly payments cover the gap between the price and that figure, plus interest, which is why they are lower than HP on the same car.
The GMFV becomes the optional final ‘balloon’ payment. When the agreement ends, you can pay it and keep the car, hand the car back and walk away, or part-exchange it and put any equity towards your next car. Because the lender expects to get the car back in a predictable state, PCP comes with an annual mileage limit and charges for excess miles or damage beyond fair wear and tear.
Interest is charged on the whole amount borrowed, balloon included, for the full term, which matters more the higher your APR.
PCP vs HP at a glance
Set side by side, the two agreements differ most on what you are paying for and what happens at the end. The last row is the one this guide is about.
Hire purchase (HP) | Personal contract purchase (PCP) | |
|---|---|---|
What your payments cover | The full price of the car, plus interest | The drop in value down to the GMFV, plus interest on the whole amount |
Deposit | Often optional; no deposit available from many lenders | Often optional; no deposit makes the balloon larger |
Monthly cost | Higher | Lower on the same car and term |
Final payment | None beyond a small option-to-purchase fee | Optional balloon if you want to keep the car |
Ownership | Automatic after the last payment | Only if you pay the balloon |
Mileage limit | None | Yes, with an excess mileage charge |
Condition check at the end | No | Yes, if you hand the car back |
Right to end early (voluntary termination) | Once you have paid half the total amount payable | Same rule, but the balloon counts in the total, so you reach it later |
Typical cars | New and used, including older, lower-value cars | Mostly newer cars; many lenders set a minimum value |
Approval with bad credit | Generally easier | Generally harder |
Rates depend on your circumstances and the lender. Our representative APR page explains how our rate is worked out.
Which is easier to get with bad credit, HP or PCP?
Hire purchase is generally the easier of the two to get approved for when your credit history is poor or thin. The reasons come down to how much risk the lender is carrying and for how long.
On HP, the lender is repaid entirely through your monthly instalments, so its main question is whether you can keep up those payments. On PCP, a large part of the car’s value (the balloon) stays unpaid until the very end. If you hand the car back and it is worth less than the GMFV the lender set, the lender takes the loss. That residual-value risk sits on top of the usual credit risk, and lenders are less willing to take on both for an applicant whose file already shows missed payments or defaults.
Two practical points widen the gap. Many specialist lenders who focus on poor credit offer HP or conditional sale rather than PCP, which leaves fewer PCP options to be matched with. PCP is also mostly offered on newer cars, and many lenders set a minimum car value, often around £10,000, while plenty of people rebuilding their credit are shopping for older, lower-priced cars that sit comfortably within HP.
Can you get PCP with bad credit?
PCP with bad credit is possible, and it becomes more realistic when the problem is older or isolated, your income is stable and the car is recent enough for a lender to predict its value. The lower monthly payment can even help an application pass an affordability check. Bear in mind that interest on a PCP is charged on the balloon as well, so at the higher rates that come with impaired credit, the total cost of keeping the car at the end can climb well above HP.
Lender criteria vary, and no type of agreement guarantees approval. Kandoo is a credit broker, and our panel of lenders considers both HP and PCP, so we can show you which is realistic for your circumstances before you commit. Our guide to bad credit car finance covers what specialist lenders look at.
Check your eligibility with a soft search that does not affect your credit score.
How to improve your approval chances either way
Whichever agreement you lean towards, the steps that help an application with impaired credit are much the same.
Check your eligibility with a soft search first: A soft search shows how likely you are to be accepted without leaving a mark other lenders can see. Applying directly to several lenders means several hard searches on your file, and a cluster of those in a short space of time can make the next lender more cautious.
Be realistic about affordability: Lenders are required to check that repayments are sustainable, so stretching for a car that only fits your budget on the lowest possible monthly payment is more likely to be declined. A cheaper car on HP that leaves room in your budget is often a stronger application than a pricier one on PCP.
Go to a specialist before a mainstream bank: High street lenders lean heavily on credit score. Lenders that specialise in poor credit look more closely at your current income and outgoings, and a broker can match you with them directly instead of you collecting refusals one by one.
Put down a deposit if you can: Plenty of lenders will consider no deposit, and our no deposit car finance page explains how that works. Even a modest deposit reduces the amount you borrow and shows the lender you have some money of your own in the purchase, which can tip a borderline decision.
It also helps to have your paperwork ready (payslips or bank statements, proof of address and your driving licence). Our car credit documentation page lists what lenders usually ask for, and our broker’s guide to improving your credit score covers the longer-term fixes.
See what you could be approved for, with no impact on your credit score.
HP vs PCP FAQs
Is PCP better than HP?
PCP suits drivers with good credit who want low monthly payments and plan to change car every few years. If you want to own the car, or your credit history is patchy, HP is usually the better fit because it is easier to be approved for and there is no balloon to find at the end.
Is PCP or HP cheaper overall?
If you intend to keep the car, HP is usually cheaper overall. On PCP you pay interest on the balloon for the whole term and then have to pay the balloon itself, so the total to own the car tends to be higher. PCP only works out cheaper when you hand the car back, because you have paid for the depreciation rather than the whole car.
Can I switch from PCP to HP partway through an agreement?
The agreement itself cannot be converted, but you have a legal right to settle a regulated finance agreement early. You can ask your lender for a settlement figure and refinance that amount with a new HP agreement, or refinance the balloon with HP when your PCP ends. Either way it is a new application, so the new lender will run its own checks.
Does applying for HP or PCP show as a hard search straight away?
With Kandoo, checking your eligibility uses a soft search, which you can see on your credit file but other lenders cannot, and it has no effect on your score. A hard search is only recorded once you have chosen a lender and decided to go ahead with a full application. This works the same way for HP and PCP.
What if I’ve had a CCJ or IVA? Can I still get HP or PCP?
In many cases you can, and HP is the more likely route because bad credit PCP finance in the UK is harder to find. With a CCJ, specialist lenders generally look more favourably on one that is older and satisfied than one that is recent and unpaid. With an IVA, you will normally need permission from your insolvency practitioner before taking on new credit above the limit set in your IVA terms. Our guides to car finance with a CCJ and car finance with an IVA go through both in detail.
Kandoo Car Credit is a credit broker, not a lender. All finance is subject to status and affordability.