How your car finance payment is worked out
The amount you finance is the car price less your deposit. On Hire Purchase, the monthly payment spreads that whole balance plus interest across the term until it reaches zero, using the standard amortisation formula payment = P × r ÷ (1 − (1 + r)−n), where P is the amount financed, r is the monthly interest rate and n is the number of months. Because a UK APR is an effective annual rate, this calculator converts it to a monthly rate with (1 + APR)1/12 − 1, so the payment lines up with a quoted APR.
HP and PCP, side by side
Hire Purchase clears the full balance, so the car is yours once the last payment goes out. PCP keeps the monthly payment lower by holding back a large final sum, the balloon payment, so the monthly payments only cover the car's expected depreciation plus interest. The calculator shows both on the same figures, so you can see the trade-off: a lower monthly payment on PCP against a lump sum still owing at the end, versus a higher HP payment that leaves nothing to settle.
The PCP balloon payment
The balloon, or Guaranteed Minimum Future Value, is set at the start of a PCP deal and falls due at the very end. It is the lender's estimate of the car's value at that point, and it is why PCP payments come in below HP. At the end of the term you can pay the balloon and keep the car, hand the car back and walk away, or put any equity above the balloon towards a new deal. The calculator shows the balloon separately so the monthly figure and the final lump sum are both clear.
A worked example
Take a £20,000 car with a £2,000 deposit at 9.9% APR over 48 months. That finances £18,000. On HP the payment is about £452 a month, roughly £3,697 of interest, and the car is yours at the end. On PCP with an £8,000 balloon the payment drops to around £315 a month, but £8,000 is still due if you want to keep the car. Lower the APR or the term and the interest falls; the balloon lowers the monthly payment but not what you ultimately pay to own the car.
Frequently asked questions
How is car finance calculated?
On Hire Purchase, the amount you borrow is the car price less your deposit, and the monthly payment spreads that whole balance plus interest over the term until it reaches zero. It uses the standard amortisation formula, payment = P × r ÷ (1 − (1 + r)^−n), where P is the amount financed, r is the monthly interest rate and n is the number of months. On PCP, part of the balance is deferred as a balloon payment, so the monthly payments only cover the car's expected depreciation plus interest. This calculator applies both methods and shows the total interest and total payable.
What is the difference between HP and PCP?
Hire Purchase spreads the full cost of the car across the term, so once the last payment is made the car is yours with nothing else to pay. PCP keeps the monthly payments lower by deferring a large chunk of the value to the end, called the balloon payment or Guaranteed Minimum Future Value. At the end of a PCP you choose one of three options: pay the balloon and keep the car, hand the car back, or use any equity as a deposit on a new deal. PCP monthly payments are usually lower than HP, but you own nothing unless you pay the balloon.
What is a PCP balloon payment?
The balloon payment, also called the Guaranteed Minimum Future Value or optional final payment, is a lump sum set at the start of a PCP deal and due at the very end. It is the lender's estimate of what the car will be worth then, and it is the reason PCP monthly payments are lower than HP. You only pay it if you decide to keep the car. Enter your balloon figure above and switch to PCP to see how it lowers the monthly payment and what is left to settle at the end.
How much is a £30,000 car loan per month?
It depends on the deposit, APR and term. On Hire Purchase with no deposit at 9.9% APR over 48 months, a £30,000 car works out at roughly £753 a month, with about £6,160 of interest. Stretch the same deal to 60 months and the monthly payment drops to around £630, but the total interest rises because you are borrowing for longer. A larger deposit or a lower APR brings both figures down. Enter your own numbers above for an exact estimate.
Is 12% APR high for car finance?
It is on the higher side for 2026. Representative APRs on mainstream car finance often sit between roughly 8% and 13%, with the best rates going to buyers with strong credit. A 12% APR is not unusual if your credit history is thin or the car is older, but it is worth comparing offers, because even a couple of percentage points changes the total interest by a meaningful amount over a four or five year term. Use the calculator to see the difference a lower APR makes on your figures.
What is the 50% rule for car finance?
On a regulated Hire Purchase or PCP agreement you have a right called voluntary termination, set out in the Consumer Credit Act 1974. Once you have paid at least 50% of the total amount payable, which on PCP includes the balloon, you can hand the car back and walk away from the rest of the agreement. If you have not reached the halfway point yet, you have to make up the difference to 50% before you can end it this way. The car also needs to be in reasonable condition. It is a useful protection if your circumstances change.
This tool is a guide, not financial advice.
