What is PCP finance?

A personal contract purchase (PCP finance) agreement is one of the many ways to buy a car without paying for it all at once. Such car finance deals are ideal for those who cannot afford large monthly payments but still want to get a new car every 2-3 years. Let us take a closer look at the PCP scheme.

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Rates from 9.9% APR: the exact rate you will be offered will be based on your circumstances, subject to status. Representative example: borrowing £7,000 over 5 years with a representative APR of 21.9%, the annual interest rate of 21.9% (Fixed) and a deposit of £0, the amount payable would be £185.33 per month, with a total cost of credit of£4,119.81 and a total amount payable of £11,119.81. We look to find the best rate from our panel of lenders and will offer you the best deal that you're eligible for. We receive a fixed fee commission per finance agreement, or we receive a commission based on a percentage of the total amount of finance taken. This will not affect the interest rate offered or the total amount repayable. Our service is free.

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How does PCP work?

Personal Contract Purchase (PCP), is a tailored arrangement designed to suit your specific needs. The process is incredibly simple.

First, select the vehicle you would like to purchase and any deposit amount you would like to contribute.

Second, tell us your MAXIMUM estimated annual mileage.

Finally, your lender will take this information and calculate your bespoke 'Optional Final Payment' (OFP). This value is guaranteed, regardless of true depreciation.

This amount (OFP) is then offset until the end of the arrangement, meaning you’ll benefit from lower monthly payments throughout your contract term. You may be able to afford a better spec or newer vehicle for your monthly budget.

When you arrive at the end of your arrangement, you can decide which option suits you best.

Your first option is to simply part exchange the vehicle. Provided you have not exceeded your maximum estimated mileage, and the car is in a fair condition, the part exchange valuation should clear your Optional Final Payment, and you are free to start your new arrangement.

Option number two, you can hand the vehicle back to the lender with nothing further to pay. Again, provided you haven't exceeded the agreed mileage and the car is in a fair condition, you will be free to start your next arrangement.

Finally, if you wish to keep the car, you can pay the OFP and the car is all yours. Alternatively, this payment can be refinanced and you would own the vehicle at the end of that arrangement.

If having flexible ownership options and low monthly payments sounds good, then PCP might be the right option for you

Alternatives to PCP car finance deals

A PCP deal is a simple and convenient financial instrument for getting the car you need to use (and later own). It is an excellent alternative to a car loan if you are indebted or your finances do not allow you to pay all at once. Let us take a look at some of the best alternatives to car PCP.


One of the most popular alternatives to PCP finance is to buy a leased car. Leasing allows you to pay a fixed monthly amount and receive a new vehicle every 2-4 years. At the end of the deal period, you simply return the leased car to the leasing company, sign a new finance deal for a new model, or find yourself without a car.

When you return the car, you must ensure that you have driven no more than the agreed annual mileage and that the car is in a condition to be used in good faith.

Unlike car PCP deals, you do not have the option of taking ownership of the car at the end of the deal. However, if you have a particular budget that you can spend on a car each month, leasing is an affordable way to get behind the wheel of a new car. See more...

There are several factors to consider when deciding which option is best for you. How you plan to use the car, whether or not you want to own it, and your monthly budget will give you an idea of what type of offer you should choose.

Ownership. PCP finance allows you to own the car at the end, while leasing is a long-term rental of a new car. If you are determined to own the car, a PCP finance deal is a better option for you than leasing because you will have that option at the end of the contract.

All leased cars are owned by the leasing company that provides them. You will have to return them at the end of the deal. You may be allowed to extend the deal by a few months if you have to wait for the car to be delivered. However, this is at the supplier's discretion, and you will most likely be charged for the lease extension.

Budget. PCP is generally more expensive over the term of the finance deal than leasing. This is because the former offers additional flexibility, such as no-deposit offers, availability of new and used cars, and, of course, the ability to purchase a car in one lump sum.

Depreciation is factored into the cost of the leasing transaction. So if you drive fewer miles and specify this in the deal, the lease will ultimately be cheaper. PCP finance involves leasing the full amount of the car, with interest paid over the term for those who intend to own the car at the end.

Early termination. PCP finance deals and lease agreements are different in terms of early termination. With car PCP deals, once you have paid 50% of the total financing to the finance company, you have the option to terminate the deal.

There is a cost to terminating a lease early - typically 50% of the remaining financing plus an early termination penalty. Some providers may be able to extend the term of the finance deal to reduce your monthly payments if you want to avoid high costs.

Bank loan

PCP and bank loans are both great options for buying a new car, but it's hard to know which one is the best way to finance a car? Getting a personal loan to pay off your car isn't fundamentally different from getting other loans. You'll have monthly payments over an agreed-upon term and a fixed interest rate.

Once you've chosen a car, find out how much you need to borrow, then approach a bank or financial institution. Your eligibility depends mainly on your credit rating and history, but some lenders will approve a loan even if you have a poor credit history. See more...

If your application is approved, the money will go directly into your bank account, and you can buy the car as soon as you want. Since you own it immediately, there are no restrictions on mileage or modifications, and you can even sell it.

Financing with a personal loan allows you to buy the car immediately, while with PCP, you don't own the car until you decide to pay off the final lump sum. Personal loans generally offer longer repayment terms but keep in mind that you may end up paying more because of interest.

With a car PCP, you are more likely to get discounts and down payments because you deal directly with the dealer or manufacturer. Since you are not obligated to buy a car, you are more likely to get another finance deal, and they are usually more flexible on payment options.

With a personal loan, you're buying the car upfront and probably won't be returning to the dealership anytime soon. Since finance dealers are unlikely to get another deal from you, they have no incentive to give you discounts. However, personal loans often advertise meagre rates, so you can get a good finance deal if your credit history is good.

Hire purchase scheme

Both car PCP and car HP are based on a down payment followed by a series of monthly payments. In both cases, these payments depend on the value of the car, the length of the deal, and the sum of your down payment. However, once the monthly payments are made, things get more complicated.

With PCP finance, the monthly payments are equal to the value the car lost while driving it - the difference between the original price and the expected value at the end of the deal - whereas with a lease purchase, the monthly payments cover the full value of the car. See more...

This means that you become the owner of the car at the end of the HP deal. Whereas at the end of the PCP finance deal, you still do not own the car. If you wanted to buy it outright, you would have to make an additional "optional final payment," closely related to the car's residual value.

On the other hand, with the HP finance program, you don't have to pay anything once the monthly payments are over because the car is automatically taken back.

HP is available with more extended deals, which allow you to spread the cost over more monthly payments, thus reducing the difference somewhat.

Compare PCP finance with other options

There are several finance options for you to choose from, such as a personal loan or HP finance.

You should consider a personal loan if:

  • You do not want or can't pay an initial deposit;
  • You trust your bank;
  • You have an excellent credit history and can get a low-interest rate.

You should consider HP financing if:

  • You want to avoid excess mileage charges;
  • You are not scared of high monthly payments;
  • You are sure you want to keep the car after the deal is over;

You should consider a PCP loan if:

  • It is important to you that the monthly payment is small;
  • You want a new car every 2-3 years;
  • You want to be secured against the asset;
  • You want to have support with any vehicle issues;

With PCP, there's a large manufacturer deposit contribution and a lower interest rate than with HP.

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Personal contract purchase example

Let's look at an example of how this type of car finance works in practice. So, you have signed a deal for three years for a car that costs £20,000. The finance company predicts that the car will be worth £8,000 by the end of the deal period. Your next steps are as follows:

  • First, you make a 10% deposit - in our case, that would be £2,000. For the remaining £18,000, you take out a loan.
  • At the end of the deal, you can either return the car to the dealer or own it outright by paying £8,000.
  • Whether you return the car or not, you must pay interest on the entire loan.

What are your full options at the end of the PCP deal?

We've talked about this before, but now let's look at all the options in more detail. So, you have three options for after your deal ends:

  1. Become the owner of the car by paying the balloon payment. You may also have to pay an additional to the finance company, aka your PCP broker.
  2. Return the car. If there is no damage or excessive mileage on the vehicle, you can return the car to the dealer without hindrance.
  3. Choose a new car: By the end of the deal period, the vehicle will probably be worth a little more than the balloon payment. In that case, you can use that amount as a deposit for the new deal. This amount cannot be "cashed out" - it can only be used as part of the deposit for the new car. If the value of the car is less than the balloon payment at the end of the deal, your best option is to return the car.

Are there any additional charges involved in a personal contract purchase?

Mileage. When putting together your deal, be sure to specify how many miles you expect to drive. Cars driven frequently will naturally be worth less than those that are rarely used. It's essential to specify the exact figure, as the mileage on the clock will be checked at the end of the deal. If you exceed the set limit, you may be charged extra for each mile driven.

Damage. Any scratches, missing parts, body issues, or damage of any other kind will likely be charged to you. However, normal wear and tear on the car are not considered damage.

Poor credit history. You won't necessarily be rejected. But the interest on your finance deal could be substantially higher, and the monthly payment could also be more.

Car finance PCP deals: other things to consider

By asking the right questions, you will evaluate the finance deal more objectively. We will try to highlight the significant parts of the deal and explain where to pay attention to get the expected financing terms.

What will the residual value of the car be, and how many payments will need to be made?

You can almost adequately estimate the sum of future expenses if you ask about the size of the main payments under the leasing deal. The first payment is traditionally the commission, which is used to pay for the information services of the leasing company.

Up to 49% of the advance payment, monthly lease payments, and the repurchase price of the car are mutually correlated and are determined by the client's wishes.

What is the interest rate?

Leasing does not use the interest rate concept, but there is a rate of appreciation. Its size includes compensation of expenses of the lessor, connected with purchase and transfer of the car to the client, compensation of expenses, connected with rendering other services, foreseen by the deal, and the lessor's income.

Normative legal acts do not define the calculation of the appreciation rate; that is why each company chooses its calculation method. Large lessors can offer low appreciation rates on account of partnership programmes with dealers, and low rates are often encountered when carrying out campaigns for attracting customers.

What is the maximum mileage?

Sometimes you may see an offer that sounds like a good deal, but when you ask about mileage limits, you find out that the lease only covers 10,000 miles per year, not the industry standard 20,000. Such a lease is no longer as good an opportunity as it first seemed.

For one thing, if you exceed the mileage limit, the lessor will charge a cost to the car, through the sale of an additional package of miles or for each one. So if you don't ask about mileage limits, you may be in for a nasty surprise by the end of the lease.

Secondly, the very value of such a lease will also be lower simply because you won't be able to use the car as often as you would with a lease with more mileage included.

What are the additional payments present in leasing?

There is a chance to improve the terms of your deal by asking about any that could be reduced or eliminated. Most deals have an upfront and monthly payments that are not negotiable, but other for additional services can be excluded.

Additional services from leasing companies usually include the registration of leasing objects the AA or the RAC, delivery of the car to the client, an insurance and fuel programme, car buyback service, and more. It is worth thinking about real figures here because it is more economical and less time-consuming to arrange assistance from a leasing company. The cost of packages and additional services varies from one company to the next.

Can the lease agreement be transferred to another customer?

Today's buyers expect more flexibility and want to change cars more often, which can be difficult with leasing. So it's a good idea to ask ahead of time if the agreement allows you to transfer it to another customer for the remainder of its term. Most major leasing companies allow such a transfer, but there are exceptions. If you think you might want to get out of the lease early, make sure you ask this question before you sign the deal.

When you get the answers to these questions, you'll have a much clearer idea of the benefits of a particular lease offer. Discuss the right questions carefully, and you'll get a finance deal that saves you finances and brings a pleasant driving experience.

What are the pros and cons of PCP car finance?


Monthly payments are lower than a loan or instalment plan.

You don't have to worry about the future value of the car when you sell or resell it.

Several flexible options for what to do with the car are available, including the option to buy the car back.

Dealers often add service and maintenance packages, warranties, and insurance.

You have the ability to buy a more expensive car than you could otherwise afford, but with monthly payments that fit your budget.


You won't own the car.

Interest rates on PCPs are usually higher than on personal loans.

If the projected future value is set very close to the actual value of the car, you will have little money to carry over to another deal.

You'll have to pay additional if you exceed the agreed-upon mileage.

The future value is based on keeping the car in good condition. You may have to pay extra for repairs that are not due to normal wear and tear.

Could I get PCP with poor credit?

Even if you have poor credit, you could still get a PCP deal. However, before you sign a deal, you will have to pass a credit check. The Carplus team will try to find you the perfect car finance. To apply for car financing with a poor credit score, you will need to:

  1. Fill out and submit our online application form.
  2. Wait for us to perform a soft credit check that will not affect your credit history or be noted on your credit report.
  3. Discuss your options with us in more detail. We'll take care of everything else and get the finances to you as soon as possible.

Is PCP car loan the right option for me?

PCPs are best for you if you want to change cars in a few years. But if you plan to drive the same car for years on end, you might want to consider another form of loan. After all, if you decide to keep the car, a PCP will cost more than an instalment plan.

Learn more about PCP in our articles!:

  1. PCP car finance or bank loan
  2. What are PCP mileage limits?
  3. Advantages & Disadvantages of PCP
  4. What happens at the end of a PCP term?
  5. How to refinance a PCP balloon payment on a car?
  6. Can you trade in a PCP car to another dealer?
  7. PCP vs Lease: What’s Better for You?
  8. PCP vs. HP: What is the best option for me right now?
  9. What deposit will I need to pay for a PCP deal?

Why carplus is better than conventional PCP providers

When there are many loan offers from banks, a client may need help choosing the right one. These services are provided by car credit brokers. A car credit broker is a specialist or a finance company that acts as an intermediary between a lending institution and its client. Their task is to make it easier for the borrower to find and apply for a loan.

The car broker helps find a bank that offers the most favourable loan or credit for a particular client, considering their requirements and parameters. The specialist or finance company prepares and submits the application, collects the documents, and signs the agreement. In addition, they give advice and help in case of refusal

The services of a good intermediary are beneficial to both the bank and the borrower. The first one receives reliable and trustworthy clients and advertising for their services, and an outsider's view of the work. The second gets a loan on good terms, support, and advice.

Loan brokers can:

  • make a list of banks according to certain criteria, such as those with affordable mortgage rates or an extensive network of ATMs machines;
  • help you put together a package of documents for a loan;
  • send your finance application to several banks;
  • tell you which finance organizations have a higher probability of granting a loan and which lenders thoroughly check the solvency of borrowers from their own experience.

However, there are many fraudsters among financial brokers. They will not help you in the choice and execution of the loan but most likely will leave you without finances. Because of this, many borrowers do not trust car credit brokers at all.

But in the case of Carplus, you don't have to worry about anything. The Carplus service offers a wide range of financial deals, using which you can quickly buy a car in the UK on the most favourable terms. Let us explain why you should trust Carplus as your PCP provider.

  1. Carplus specialists know the credit services market well. They study all the offers from different banks and choose the right options for their clients. They also collect news from banks, analyse the ratings and monitor the forecasts. Carplus specialists cooperate with credit bureaus, insurance companies, real estate agencies, and other organisations.
  2. Carplus specialists are registered in the list of legal entities. They do not use any illegal methods in their work with finance deals.
  3. Carplus specialists are always honest with you. They never guarantee 100% loan approval. They can only guarantee to help you get it. In addition, they work quickly and qualitatively - under favourable conditions, you can get approval for your finance deal within a week.

A decent car credit broker - such as Carplus - is an intermediary who helps get a loan or a loan for an individual or a legal entity. An honest broker:

  • Is well versed in their subject and can explain the principles of the job in plain language
  • Does not guarantee one hundred percent success
  • Does not offer to forge documents or negotiate with bank employees
  • Does not spam or order reviews

To get a bank loan for the necessary amount, you will need to find a bank, understand the terms of the loan agreement and collect the required package of documents. If you choose to cooperate with Carplus, all responsibility for the preparation of documents and negotiation of the finance deal will fall on the shoulders of professionals, which means:

  • confidence that your interests will be protected;
  • complete confidentiality of information;
  • a good chance of obtaining a loan on the most favourable terms;
  • fast and successful resolution of related problems.

The advantages of applying to Carplus for professional support are apparent – They also provide competent and uncomplicated debt restructuring, refinancing (refinancing), and conduct a constructive dialogue with the bank (with professional representation of the debtor's interests). As a result of such cooperation, you will correct your affairs with the most minor financial and moral damage.

Carplus is a reliable PCP broker

Carplus is a team of expert car brokers who make financing a new car as easy as possible. Here we strive to give you the best possible deal, regardless of your credit history or financial situation.

Working closely with our lender partners, we've compiled and compared over 100 products to offer you only the best car deals for your budget. Carplus is your trusted PCP broker in the UK. Give us a call now!

Personal contract purchase example

Let's look at an example of how the scheme works if you apply for PCP car finance. So, you have signed a contract for three years for a car that costs £20,000. The finance company predicts that the vehicle will be worth £8,000 by the end of the contract period. Your next steps are as follows:


First, you make a 10% deposit - in our case, that would be £2,000. For the remaining £18,000, you take out a loan.


At the end of the contract, you can either return the car to the dealer or own it outright by paying £8,000 to the dealer.


Whether you return to the UK or not, you must pay interest on the entire loan.

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PCP car finance FAQ

Is PCP only available for new cars?

No, cars that are only a couple of years old can also be financed with PCP. However, you may find that interest rates on these deals are much higher than PCP deals on new cars. This is because the value of the car is much lower, so the inflated interest rate is the only way the dealer is able to make money on the contract.

What is the total cost of a PCP deal?

A PCP deal consists of an initial deposit (about 10%), monthly instalments (plus interest) and any additional for insurance, service and maintenance that may be required.

Be sure to look at the APR percentage on the deal, rather than any fixed-rate of interest offered, as this will show the true additional amount to be paid. By law this has to be stated on each deal and if you cannot see it you should ask for it in writing.

Depending on the car you purchase, the finance company may also charge additional purchase and arrangement ranging anywhere between £100 and £500.

What is the best way to lower PCP payments?

If you want to pay a lower amount each month on your PCP deal, the best option is to put down a large deposit upfront.

You should be realistic about the mileage limit you set at the start of the contract – the mileage amount will also impact your monthly payment. However, also be aware that exceeding the level by the end of the contract is likely to lead to additional mileage charges.

It is worth remembering that the lower the value of the car you want to drive, the less you will have to pay each month.

Am I able to pay off the PCP deal early?

You usually have the choice to pay off the full contract early, although this may cost you more.

The finance company make their money over the full course of the contract, so even if you want to finish early you’ll still have to pay the remaining amount left on the deal.

This means paying for the value of the car at the point you want to end the contract. For example, if you are mid-way through the deal and it is worth £13,000 and your settlement figure is £15,000 – the extra £2,000 is due to clear away any ‘negative equity’ to free you from the deal.

You may also be charged an additional for choosing this option, although that will depend on the finance company.

Are there any other costs involved?

If you get to the end of the contract and decide to buy the car there is also likely to be an ‘option to purchase’, which could be anywhere between £100 and £200. This is to transfer the vehicle into your ownership and is payable in addition to the balloon payment.

You cannot be asked to pay more than the GMFV figure (discussed earlier on this page) by the dealer. This also applies to you returning the car and asking for more than its original valuation.

How will it affect my credit score?

A soft credit check will be carried out, followed by a hard credit check, if you wish to proceed with an application. Only a hard credit check will be recorded on your file.

Because all car finance is secured on the car the check may not be as strict as those used for personal loans. As a result, if a customer defaults on a PCP deal the finance company can simply repossess the car to take back ownership of the asset loaned to you.

As long as you pay the monthly instalments on time, you will not experience any diverse effect on your credit file as a result of a PCP deal. Defaulting on a contract could have a negative effect on your credit file and could affect your chances of securing credit elsewhere.

What happens if you miss a PCP payment?

In the first instance the lender will follow up to see if you have simply forgotten to pay. As long as this is only a one-off and can be rectified straight away, there should not be a problem. If you continually fail to maintain payments they could cancel the contract and repossess the car.

Do I also need gap insurance?

Gap insurance is an additional policy you can take out while on a PCP deal to protect you from having to pay the car’s current value should it be stolen or written off due to a crash.

This type of policy will either pay out the original sale price of the vehicle, the remaining amount outstanding on the PCP contract, or the amount it would cost to purchase the same car as new.

Cars generally depreciate very quickly, with the AA estimating that within the first 3 years the value can drop by up to 60%.

Also be aware that since September 2015, dealers are not able to offer you gap insurance at the same time as selling you a finance deal. They can offer it at a later date (they must wait at least a week) but in general buying gap insurance from same dealer is not a good idea. This is because you can usually find cheaper alternatives elsewhere.

Gap insurance is not a necessity and you are under no obligation to take this type of policy out while on a PCP deal.