Key takeaways
- On the same £30,000 car at 6.9% APR over 48 months, the monthly payment ranges from £330 on a PCP to £571 on hire purchase — a gap of 73%.
- The four-year total cost of those routes ranges from £22,273 to £24,329. That's a spread of £2,056, or 9%, against a 73% spread in the monthly figure.
- Paying cash gives up £5,502 of interest over four years at the 4.30% the Bank of England recorded on individuals' new time deposits in June 2026.
- At the same 6.9% APR, keeping the car and handing it back cost the same, because the £13,229 balloon payment buys an asset the lender values at £13,229.
- Driving 12,000 miles a year rather than 10,000 runs up 8,000 excess miles: £1,344 at Land Rover's PCP rate of 16.8p, £3,398 at its lease rate of 42.48p.
Same car, same rate: the monthly payment moves 73%, the four-year total moves 9%
Four ways to pay for the same car, and the only number anyone puts in front of you is the monthly payment. Which one costs least?
Here is the arithmetic on one worked example. The car is £30,000 on the road. The term is 48 months, the mileage allowance is 10,000 miles a year, and the deposit is £6,000. The rate is 6.9% APR, or 6.69% fixed — the representative APR on the first of Land Rover's published personal contract purchase examples. The four-year total is everything paid out, less what the car is worth at the end, plus the interest given up on cash tied up along the way.
Cash comes to £22,273. Hire purchase comes to £23,684. A PCP comes to £24,329, whether you keep the car or hand it back. The whole spread is £2,056, or 9%.
Now the monthly payments. The PCP is £330 a month. Hire purchase is £571. That's 73% more, on the identical car, at the identical rate, over the identical term.
So the number that varies most between these products is the one they're sold on, and the number that varies least is the one you actually pay. The FCA's October 2025 competition annex on motor finance says the same thing about how people shop: consumers "tend to focus on monthly payments rather than APRs", and 64% of borrowers cite monthly payments being within budget as a reason for their choice of finance type.
Four routes, and what each one leaves you holding at the end
Hire purchase splits the price, minus your deposit, into equal monthly payments. Pay the last one and the car is yours.
A PCP is a form of hire purchase with one change: a chunk of the price is carved out at the start and deferred to the end as a single balloon payment. Your monthly payments cover the rest. At the end you can pay the balloon and own the car, hand it back, or part-exchange it.
A personal contract hire agreement is a lease. You pay an initial rental and then monthly rentals, and at the end you give the car back. There is no option to own it.
Cash is the only route where £30,000 leaves your savings on day one and becomes a holding that depreciates. Nobody charges you interest, which is why it feels free, and it isn't.
In the FCA's consumer research, carried out by Yonder with fieldwork in November 2024, PCP was the most commonly held product at 46% of current holders, followed by hire purchase at 31%, personal loans at 16% and conditional sale at 7%.
The balloon payment is a residual value forecast, and it decides everything about a PCP
The balloon has a formal name: the guaranteed minimum future value. The lender forecasts what the car is worth at the agreed term and the agreed mileage, then guarantees that figure. Land Rover's page describes the vehicle's value as "guaranteed to at least equal that of the optional final payment".
That guarantee is why the mileage limit exists. A forecast of a car's value is only meaningful with a mileage attached to it, so the mileage becomes a term of the contract.
The FCA describes the resulting payment structure plainly: "with PCP agreements, monthly payments are to cover the vehicle's depreciation, plus interest". Not the price — the depreciation. With an average advance of over £28,000 on new cars, the regulator notes, "balloon payments are likely to be large".
Land Rover's published example gives a real one. On a Range Rover D300 SE at £107,530 on the road, with a £23,991 deposit and 48 payments of £1,129, the optional final payment is £47,418 and the total amount payable is £125,601. The balloon is 44.1% of the price after four years at 10,000 miles a year. Apply that same 44.1% to a £30,000 car and the balloon is £13,229.
Here's the part the lower monthly payment hides. You pay interest on the deferred £13,229 for the whole 48 months, because it stays borrowed until the day you settle it. Total cash out on the PCP, balloon included, is £35,075. On hire purchase at the same rate it's £33,421. Deferring the balloon costs £1,655 in extra cash, and buys a monthly payment £241 lower.
At the same rate the three end-of-term choices are a wash, until the car isn't worth the balloon
Land Rover sets out the three options: "(1) return the vehicle and not pay the Optional Final Payment... (2) pay the Optional Final Payment to own the vehicle or (3) part exchange the vehicle subject to settlement of your existing credit agreement".
Run them through the totals and something odd falls out. Pay the £13,229 balloon and you receive a car the lender values at £13,229. Hand it back and you pay neither. The four-year total is £24,329 either way. Cash out differs enormously — £35,075 against £21,846 — but cost doesn't.
So the choice at the end of a PCP is worth nothing at all, as long as the car is worth exactly its guaranteed future value. It only becomes worth something when the two numbers separate.
If the car is worth more, that gap is yours. The FCA puts it this way: "If the Guaranteed Minimum Future Value is lower than the market value of the vehicle, the positive equity can be put towards the deposit on a new motor finance agreement." If the car is worth less, handing it back leaves the shortfall with the lender. That's the insurance you bought, and it's priced into the rate.
Keeping the car on a PCP costs £645 more over four years than hire purchase at the same 6.9% APR. That's the price of the option, and of paying later.
The mileage limit is the price of the guarantee, charged by the mile
Land Rover's small print sets the ceiling: "if the vehicle has exceeded the permitted maximum mileage of 40,833 miles, a charge of 16.8p (including VAT at 20%) will apply per excess mile."
Say you drive 12,000 miles a year against a 10,000-mile allowance. Over four years that's 8,000 excess miles, and £1,344 at 16.8p. On Land Rover's lease for the same model the rate is 42.48p a mile, so the same 8,000 miles cost £3,398. Toyota's small print puts excess miles at 8p a mile on several of its plans, where the bill would be £640.
Set £3,398 against the £2,056 that separates the cheapest route from the dearest. The mileage assumption can matter more than the product choice, and it's the one term people skip. Yonder's interviews for the FCA found consumers "were unaware of or had not fully considered potential downsides (such as mileage limits or not owning the vehicle at the end without an extra payment)".
Paying cash costs £5,502 in interest given up, and rather less after tax
Cash has no APR, so it looks like the free option. It isn't, because £30,000 has to come from somewhere it was already earning.
In June 2026 the Bank of England put the effective interest rate on individuals' new time deposits at 4.30%. Left alone for four years, £30,000 at that rate earns £5,502. That's the cost of the cash route, and it's why the cash total above is £22,273 rather than the £16,771 you'd get from price minus residual alone.
Two things cut it. Savings interest is taxable, and at a basic rate of 20% the 4.30% becomes 3.44%, which drops the four-year figure to £4,346. Our guide to how savings and dividend income is taxed at each band works through where those thresholds bite.
The second cut is bigger. Most people's spare cash isn't in a new fixed-term account. The Bank put the rate on individuals' outstanding sight deposits — current accounts and instant access — at 1.65% in the same month. At 1.65% the interest given up falls to £2,030, and the cash route's four-year total drops to £18,801, below every financed route in the comparison. What your cash actually earns, rather than what it could earn, decides this. We've looked at the same question from the other end in what portfolio cash really costs and in where emergency cash sits.
The lease is the only route with no ownership option and no statutory half-way exit
The FCA's general finding is that leasing is cheaper month to month: "The monthly cost of a PCH agreement is usually lower in comparison to HP or PCP, however, at the end of the contract there is no option to take ownership of the vehicle."
Land Rover's own published offers disagree, and the disagreement is instructive. On that same Range Rover D300 SE, over the same 48 months at the same 10,000 miles a year, the lease is an initial rental of £9,390 and then £1,565 a month. The PCP on the identical car is £1,129 a month. The lease rental is £436 higher, 39% more.
Both can be true. A lease rental covers the car's full depreciation over the term with nothing deferred, while the PCP payment defers £47,418 of the price to the end. Against hire purchase, which also defers nothing, the FCA's statement holds. Against a PCP with a large balloon, it need not.
The lease also sits outside the Consumer Credit Act 1974's termination right. Section 99 applies to "a regulated hire-purchase or regulated conditional sale agreement", which a hire agreement is not.
The 50% rule arrives at month 19 on hire purchase and month 35 on PCP
Section 100 of the same Act says that on voluntary termination the debtor pays "the amount (if any) by which one-half of the total price exceeds the aggregate of the sums paid". Once you've paid half the total price, you can walk away and owe nothing further, subject to the car's condition.
Half the total price is a different date on each product, because the balloon sits inside the total price. On the worked hire purchase agreement the total is £33,421, so half is £16,710, reached at month 19 counting the £6,000 deposit. On the PCP the total is £35,075, so half is £17,538 — and at £330 a month that arrives at month 35.
Two agreements on the same car, at the same rate, with the statutory exit 16 months apart. Section 94 gives a separate right to settle early in full at any time, with a rebate of unearned interest, on both.
The strongest objection: at 0% APR, cash is the expensive option
Everything above assumes one rate across the products. Manufacturers routinely break that assumption. The FCA found that "the minimum APR reported by lenders on new vehicles is 0%", and that 19% of motor finance agreements for new cars between 2019 and 2022 were 0% APR deals. Toyota currently advertises 0% APR representative on 24-month PCP plans.
Rework the same £30,000 car at 0% and keeping it costs £18,811 over four years — £3,462 less than paying cash. Where the manufacturer subsidises the rate below what your savings earn, borrowing is the cheaper route and cash is the expensive one. The chart below puts that bar next to the others.
There's a second objection, and it cuts deeper. The spread within a product has been larger than the spread between products. In March 2019 the FCA estimated that on a typical £10,000 agreement, higher broker commission under one discretionary model "can result in the customer paying around £1,100 more in interest charges over the four-year term". That is half the entire £2,056 gap between routes here, produced by nothing but who arranged the finance.
The rate you're offered also depends on where you're buying. In the FCA's 2023 lender sample the weighted average APR was 5.9% on new vehicles and 13% on used, with a weighted average maximum across lenders of 28%.
What this comparison cannot tell you
The £13,229 residual is one lender's published forecast for one luxury model, rescaled to a £30,000 car. Residual values differ by model, fuel type, trim and mileage, and a forecast is not a market price. Every total here moves if that number moves.
Representative examples are advertised offers, not quotes. The FCA notes that motor finance agreements "typically have a term of 2-5 years with a fixed APR", and the APR you're actually offered depends on your credit file and the lender's panel.
The price and deposit assumptions come from the FCA's consumer research sample of 4,001 current holders, where the mean new-vehicle list price was £30,650 and the average deposit was near 20% of list price. The interest rates in that sample were self-reported, and Yonder flags that many respondents "did not recall what interest rate they were paying, as they focussed on the monthly payments".
Fees are excluded, beyond the £10 purchase fee inside Land Rover's optional final payment. Insurance, servicing, tyres and vehicle tax are excluded too. Those differ little between the purchase routes, though a lease sometimes bundles maintenance where a PCP does not — Land Rover's PCP page states "No optional maintenance package available".
And none of this forecasts used-car values. It prices the routes given one residual assumption, which is exactly the assumption the market gets wrong from time to time.
What would change the answer
A different deposit rate changes the ranking on its own. At 4.30% cash wins by £2,056 over the dearest route; at 1.65% its total falls to £18,801 and it wins by far more. If your cash is sitting in a current account, the cash route is stronger than the headline arithmetic suggests, not weaker.
A subsidised APR inverts it. At 0% the financed route costs £18,811 against cash at £22,273, and the gap runs the other way.
Mileage can swamp both. At 42.48p a mile, 8,000 excess miles cost £3,398 — more than the entire spread between the four routes. Anyone whose annual mileage is uncertain is choosing between products on a smaller number than the one they're guessing at.
And if used values fall below the guaranteed future value, the hand-back option stops being a wash and starts being worth the difference. That is the one asymmetry in a PCP that hire purchase, a lease and cash don't have: on this contract, somebody else carries the residual risk, and the 6.9% APR is partly what that costs.