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You'll see Personal Contract Purchase (PCP) advertised almost everywhere cars are sold, from dealerships to brokers and online marketplaces. Before you apply for PCP, take a little time to understand how it works, what you'll pay over the agreement and when it makes sense compared with the alternatives.
Personal Contract Purchase (PCP) is a type of car finance that lets you spread the cost of a vehicle over an agreed term, without paying off its full value.
Instead, PCP defers part of the car's value as an optional final payment — the 'balloon payment', otherwise known as the Guaranteed Minimum Future Value (GMFV). That's what keeps your monthly repayments lower than a comparable HP agreement.
But lower monthly payments don't always mean cheaper finance overall. PCP still charges interest on the full amount you borrow, including the deferred balloon.
With PCP, the finance company owns the vehicle for the length of the agreement, and you're the registered keeper. You only become the legal owner if you choose to pay the final balloon payment — plus any purchase fee — at the end of the contract.
These estimates are subject to credit checks and may change when you apply for finance. this is for example purposes only
Maximum borrowable amount
Rates from 9.9% APR: the exact rate you will be offered will be based on your circumstances, subject to status. Representative Hire purchase (HP) 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.
Every PCP agreement follows the same basic structure, even though the details vary. You pay a deposit if one's required, make fixed monthly repayments for the term, then decide what to do when the agreement ends.
A deposit reduces the amount you need to borrow — which lowers both your monthly payments and the total interest you pay. Not every PCP deal requires one; some lenders offer no-deposit options instead. You can put down cash, a part-exchange, or a mix of both.
Monthly repayments on PCP cover the car's depreciation and the finance costs over the agreement, not its full value. Your deposit, contract length, interest rate and the car's expected future value all shape how much you pay each month. PCP leaves the balloon payment until the end of the agreement — that's why it often costs less each month than an HP deal on the same car.
The balloon payment is what the lender expects your car to be worth at the end of the agreement, estimated right at the start. When the term ends, you choose from three options:
Let's say you choose a car that costs £20,000 and pay a £2,000 deposit. Over a 48-month agreement, the lender estimates the car will be worth £9,000 at the end of the term — that estimate becomes your optional final payment.
You don't pay off the full £18,000 through your monthly repayments. PCP calculates them from the car's expected depreciation over those four years instead, plus interest on the whole amount you've borrowed.
No two PCP agreements cost the same. The car you choose, how long you finance it for, and how many miles you expect to drive each year all play a part.
The length of your repayment term shapes what you pay each month. A longer term spreads the cost over more months, so each payment is smaller but you'll pay interest for longer too, which can push the overall cost higher. A shorter term could save you money in the long run, if your budget stretches to it.
Your annual mileage limit sets the car's expected value at the end of the agreement. The more miles you plan to cover, the lower that value is likely to be — and the lower it is, the higher your monthly repayments.
Be honest about how many miles you actually drive. Go over your agreed limit and hand the car back, and you'll have excess mileage charges to pay.
The interest rate shapes both your monthly payment and the total cost of the deal. Even a small difference (half a percentage point, say) adds up over a few years, so it's worth comparing rates before you commit. Someone offered a lower rate will typically pay less each month, and less overall, than someone financing the exact same car at a higher one.
Predicted depreciation sets the car's expected value at the end of the agreement, which in turn sets your optional final payment. No car holds its value forever, but some models lose it far more slowly than others.
If the car's expected to hold its value well, your monthly repayments tend to be lower. If it isn't, your monthly repayments will be higher.
PCP isn't the only way to finance a car. HP, leasing and personal loans all work a little differently, and it's worth knowing where PCP sits against each one.
With PCP, you're not paying off the vehicle's full value, you're also given the choice to purchase the car or hand it back at the end.
HP is more straightforward. There's no balloon payment, because you repay the full amount borrowed across the agreement, and ownership transfers to you automatically once you've made the final payment and settled the small option-to-purchase fee.
If you already know you want to keep the car for years, HP is worth considering. If you'd rather decide later, PCP gives you that flexibility.
With PCP, there's a route to ownership.
A lease works more like a long-term rental. You make monthly payments for the use of the car, then hand it back when the agreement ends. Buying it was never part of the deal.
A personal loan works differently, because it isn't secured against the vehicle. Once you've chosen the car and completed the purchase, you normally own it straight away. There is no mileage limit, no GMFV, and no final payment to plan around.
With PCP, you only own the vehicle if you choose to pay the optional final payment at the end. That's one reason PCP repayments are usually lower each month than a personal loan on the same car.
The monthly payment isn't the full story. A lower figure can look attractive, but check the total amount payable too, if you plan to keep the car, that includes the optional final payment and the interest on it.
It's also worth reading through the agreement itself before you sign. Check the fair wear and tear standards, any servicing requirements, and whether charges apply at the end of the term.
Leave yourself some breathing room. Your finances can look different in three years' time, so choose a repayment you can still manage if your income or outgoings change, not just one that fits this month's budget.
Yes, bad credit PCP car finance is possible, but it may take a bit more searching. A lender will want to understand what happened with your credit history. For example, a missed payment from a few years ago will probably be viewed differently from recent financial problems. The details matter, and different lenders have various criteria when looking at applications.
When the agreement ends, you have three choices:
We know circumstances change. Ending a PCP agreement early is possible, but it isn't always free. What you owe depends on how much of the agreement is left, and whether the car's worth enough to cover the settlement figure.
There are a few routes you can take:
Ask yourself: how certain are you about your plans? If you know you'll probably want a different car in a few years, PCP gives you room to change your mind. If you're the sort of driver who buys a car and keeps it until it's no longer worth repairing, another way to finance it makes more sense.
A car on PCP also works best when the agreement fits naturally into your routine. Keeping up with servicing and making your payments on time are all part of the package. If those things aren't likely to be a problem, PCP for used cars or new models are both worth exploring.
Most PCP finance applications follow a similar process. Along with details about the vehicle, you'll need to provide information that helps the lender assess your identity, income and affordability.
| To apply for car finance you need to | Requirements | Car must meet the following criteria: |
|---|---|---|
| Provide your full name, date of birth, and nationality | Be aged 18-75 years old | Cost between £4,000 and £40,000 |
| Share your recent address history | Pay an initial deposit if the lender requires one | Have no more than 120,000 miles on the clock |
| Confirm your employment status | Receive a monthly income of at least £1,000 | Be no older than 14 years at the end of the finance agreement |
| Show your income and regular monthly outgoings |
If PCP feels like the right fit, the next step is seeing what's available to you. At Carplus, you can get a PCP finance quote with a soft credit check, so you can explore your options without affecting your credit score.
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Going over your agreed mileage limit means paying an excess when you return the car, based on how many extra miles you've driven. A few extra miles won't cost much — go well over, and the bill gets bigger.
Yes, you can get PCP car finance without a deposit if a lender offers it and your application meets their criteria. Because you're borrowing more, your monthly payments and total interest could be higher. Lenders may also check your credit file and affordability more closely before offering a no-deposit deal.
Fair wear and tear covers the marks a car picks up through normal daily use — think small stone chips, light scratches, or minor cabin wear. Anything more serious, like cracked glass, scuffed alloys, torn seats or missing keys, can mean extra charges when you return the car.
A PCP finance calculator can give you a rough idea of your monthly repayments before you apply. The figures aren't guaranteed, though — your actual quote depends on the car, the balloon payment, your credit profile and the lender's terms.
There's no universal age limit for PCP on used cars. Instead, lenders look at how old the car will be by the end of the agreement, along with its mileage and condition.
Neither is better across the board. It depends on what you want from your car finance. PCP suits drivers who don't necessarily want to own the car, with lower monthly payments made possible by the balloon payment.
With HP, you pay off more of the car as you go. Monthly payments are higher, but once you've made the final one, the car is yours — no balloon payment waiting at the end.
