PCP Finance

Buying a car is an exciting endeavour, but navigating the complexities of the various financing options can be daunting. One popular vehicle acquisition method is through Personal Contract Purchase (PCP).


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What is PCP?

PCP offers an attractive proposition for those looking to spread the cost of their dream car over a fixed term, combining the benefits of affordability, flexibility, and the potential for vehicle ownership at the end of the agreement. It offers lower monthly payments than traditional hire purchase agreements and is popular with those wanting to change their vehicle regularly, allowing individuals to enjoy a new car.


With PCP, you enter into a contract with a vehicle finance company to acquire a car over a fixed term, typically ranging from between two and four years. You make an initial deposit, followed by monthly payments throughout the contract period that covers interest charges and a portion of the car’s value. However, these payments do not cover the total vehicle value. Consequently, at the end of the PCP contract term, you have three options:


Purchase the vehicle outright by paying a final lump sum, an amount that was agreed upon at the beginning of the contract.


Return the car to the finance company without any further financial obligations, subject to any defects/damage that may have occurred to the vehicle and the predetermined mileage not being exceeded.


Renew your PCP by upgrading to a new car.

The Pros of PCP

With any car financing option, there will be advantages and disadvantages, so here we’ve taken a closer look at the pros and cons of personal contract purchase:

  • Lower monthly payments: PCP typically offers lower monthly payments compared to other car finance options such as Hire Purchase, making it more affordable for individuals who want to drive a newer or more expensive car.
  • Flexibility: PCP offers flexibility at the end of the contract term with the option to return the car, pay a final lump sum payment to take ownership or use any equity towards a new PCP agreement.
  • Potential for owning a new vehicle: PCP makes an appealing option for those who want to eventually own their car.
  • Protection against depreciation: Typically, PCP agreements include a guaranteed future value (GFV) or balloon payment, which means that the finance company takes on the risk of the car’s depreciation. This protection can provide peace of mind, as you know the car’s approximate value at the end of the contract.


What to look out for?

  • Mileage and condition restrictions: PCP agreements usually have mileage limits and require the car to be in good condition when returned. Exceeding the mileage limit or not meeting the agreed-upon conditions can result in additional charges at the end of the PCP contract term.
  • End-of-contract balloon payment: If you decide to purchase, you’ll need to make the final balloon payment, which can be a substantial lump sum, so planning and budgeting for this payment is essential.
  • No ownership without Purchase: If you decide not to take the purchase option, you will not own the vehicle at the end of the contract, meaning you have no car to show for the payments you’ve made and no asset to trade in or sell.
  • Early termination fees: If your situation changes during the PCP term and you need to terminate the contract early, this can result in penalties and fees, so reading the small print is essential.


Which one is right for me?

Choosing the right car financing option depends on several factors, including financial situation, personal preferences about owning a car, and long-term goals. Ultimately, there is no one-size-fits-all solution, and the right car financing option will depend on your unique circumstances and priorities.

We recommend reading up on all the available car financing options and carefully considering your financial capabilities, preferences, and long-term goals before deciding. Additionally, consulting with a financial advisor or speaking to car finance experts can provide further guidance in selecting the most suitable option.


The most common questions

How does PCP work?
Is a deposit required for a PCP agreement?
How is the monthly payment calculated in PCP?
What is the balloon payment in PCP?
Can I negotiate the balloon payment at the end of the PCP agreement?
Can I settle a PCP agreement early?
What happens if I exceed the mileage limit?
What happens if the car is damaged during the PCP term?
Can I modify the car during a PCP agreement?
Can I sell the car during a PCP agreement?
What happens if I return the car at the end of a PCP agreement?