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What is PCP car finance?

Our guide to PCP finance

published: 11 January 2022
Read time: 5 minutes

Personal contract purchase plans, otherwise known as PCP have become a popular alternative to buying a car outright. Our guide covers how PCP works, to help you decide if it’s the right financing option for you

What is PCP finance?

A personal contract purchase agreement, also known as PCP finance, is a way of financing new or used cars. It effectively works as a long-term rental, meaning you'll be able to drive the car until the contract ends. PCP deals have become a popular type of car finance as they typically offer lower monthly payments, making newer and expensive cars feel more affordable. 

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* Source Finance & Leasing association - https://www.fla.org.uk/research/motor-finance-key-statistics/

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How does PCP work?

PCP car finance is effectively a type of loan. Here’s how is works:

Deposit: You may need to put down a deposit (most common with new cars), which is usually around 10% of the car’s price. The larger deposit you put down, the less you’ll need to borrow and pay back. 

PCP example over a 36-month term

Car price

£15,000

Deposit

£5,000

Option to purchase fee

£10

GMFV / Balloon payment

£6,750

Monthly payment

£144.19

Total payable

£16,950.88*

Total cost of credit

£1,950.88

*Source: Motiv Finance. Representative 7.9% APR.

Monthly repayments: Your monthly repayments aren’t designed to pay off the value of the car in full. Instead, your repayments will cover the difference between the amount you’ve borrowed and the amount the finance company sets as your balloon payment – the final payment you’ll make if you want to keep the car at the end of the deal. Your monthly repayments will be affected by the ‘guaranteed minimum future value’ (GMFV) of the car. This is based on the expected fall in value of the vehicle during the PCP term, which varies by the make and model of the car and your expected mileage.  

Final (balloon) payment: If you choose to keep the car at the end of your PCP deal, you can pay a final payment, known as a balloon payment, which is how much the finance company expects the car to be worth at the end of the deal. This value is always agreed at the start of the PCP contract. You’ll have the choice to pay this and own the car outright, or hand the keys back and walk away, or if the car is worth more than the agreed balloon payment you could trade it in and use the extra money as a deposit on a new PCP contract on a new car. 

Where can I get PCP?

If you’re eyeing up some new wheels, you may be wondering what’s the best way to fund the purchase. You can get PCP finance from most dealerships, or you can get a PCP deal from other lenders, such as banks and finance providers. You can compare PCP deals from a range of car finance providers with MoneySuperMarket, in partnership with Motiv. 

What do I need to consider before taking out a PCP agreement?

 Here are some potential factors to consider before taking out a PCP agreement: 

  • Save for a deposit: It’s likely you’ll need to put down a deposit for your PCP deal, which will usually be 10% of the car’s price. The more money you can put down as a deposit, the less you’ll need to borrow and pay back 

  • Lower repayments: Compared to HP or a car loan, PCP monthly repayments tend to be smaller because they cover the fall of the car’s value over time (the depreciation), not the car’s total cost 

  • Flexibility: You’ll have the flexibility to either keep the car at the end of the deal or give it back at the end 

  • Missing a payment: The PCP finance is secured on the car so if you miss a payment, you could lose the car 

  • Car eligibility: Usually, you’ll only be able to get PCP finance for cars worth £10,000 or more 

Can I finance a used car with PCP?

PCP finance can be used to fund both used or new cars. In some cases there might be mileage limitations – for example, some PCP dealers will ask that the car you’re financing hasn’t done over a certain number of miles. Looking to finance a used car? Our guide to used car finance can give you more information. 

Can I pay off my PCP deal early?

If you’re looking to pay off your PCP deal early, there may be particular criteria you’ll need to meet. You may be able to voluntarily terminate your PCP contract if you’ve paid at least 50% of the total amount payable. But make sure to check for any fees or charges for ending your PCP finance early. You’ll need to return the car and if you’ve exceeded your mileage agreement you’re likely to need to pay an excess-mileage charge.  

What should I do at the end of the agreement?

What you choose to do at the end of your PCP agreement will depend on your personal circumstances, and whether you would rather keep the car by paying a final payment or give the keys back to the dealership.  

To decide what you should do at the end of the agreement, you’ll need to decide if you can afford the final balloon payment - if you wanted to keep the car at the end of the deal, or trade it in or if you’d prefer to hand the car back and walk away. 

What are the alternatives to PCP?

Not sure if PCP finance is the right option for you? If you’re looking to finance your new ride, there are other types of car finance to consider. If you’d prefer to own the car at the end of the deal, HP finance may suit you better. Or if you’d rather avoid taking out finance with a car dealership, you might prefer to take out a car loan.  

Other useful guides

We have a range of useful guides to help you get to grips with car finance:  

Compare car finance

Whichever finance deal you choose it’s quick and easy to compare with MoneySuperMarket. We’ve teamed up with Motiv to bring you the best car finance deals on the market from more than 30 leading lenders. We’ll help you compare quotes by size, duration, and interest rates, so you can find the perfect deal for your needs.    

Simply give us a few personal details and information about the car you’d like to buy – and we’ll scour the market to find the most suitable deals. 

Want to buy your new wheels with a car loan – search with us and find great deals from leading UK loan providers across the market. Searching won’t affect your credit score. 

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