What is PCP Car Finance? A Simple Guide (2025)

What is PCP Car Finance: PCP, or Personal Contract Purchase, is one of the most popular ways to buy a car in the UK. It offers low monthly payments and flexibility at the end of the contract, making it attractive for many drivers — especially those who like upgrading their car every few years

But how does it work, and is it the right choice for you? Let’s break it down.

How PCP Car Finance Works

When you take out a PCP deal:

1. Deposit – You usually pay an upfront deposit (often 10% of the car’s value).

2. Monthly Payments – You make fixed monthly payments over an agreed term, usually 2–4 years.

3. Balloon Payment – At the end, you can pay a final “balloon” payment to own the car, return it, or part-exchange for a new one.

The balloon payment is based on the car’s Guaranteed Future Value (GFV), which is estimated at the start of the agreement.

End-of-Agreement Options

• At the end of a PCP contract, you have three main choices:

• Keep the Car – Pay the balloon payment and the car is yours

• Return the Car – Hand the car back with no further payments (subject to mileage and condition checks).

• Upgrade to a New Car – Use any equity as a deposit for another PCP deal.

Pros of PCP Car Finance

• Lower Monthly Payments than Hire Purchase (HP).

• Flexibility at the end of the contract.

• Option to Upgrade cars regularly without large upfront costs.

Cons of PCP Car Finance

• Mileage Limits – Exceeding the agreed mileage leads to charges.

• Condition Charges – Damage beyond fair wear and tear can cost extra.

• No Ownership Until Balloon Payment – You don’t fully own the car unless you pay the final sum.

PCP vs HP (Hire Purchase)

Feature PCP HP

Monthly Payments Lower HigherEnd Ownership Optional (balloon payment) Automatic after term endsMileage Limits Yes No

Who is PCP Best For?

PCP works well for:

Drivers who like changing cars every 2–4 years.

People who want low monthly payments.

Those comfortable with not owning the car immediately.

Costs to Consider

• Deposit – Often 10% of the car price.

• APR (Interest Rate) – Can vary based on credit score.

• Mileage Charges – Typically 5–15p per extra mile.

• Balloon Payment – Can be several thousand pounds.

(FAQs)