What Is a Personal Contract Purchase (PCP) Car Finance Deal?
Understand how PCP car finance works in the UK, the three end-of-term options, and the key pitfalls to watch for before signing.
What Is a Personal Contract Purchase (PCP) Car Finance Deal?
Personal Contract Purchase (PCP) is the UK's most popular car finance product, accounting for the majority of new car finance agreements. Understanding exactly how it works prevents costly surprises.
The Three Key Elements
- Deposit: Usually 10–20% of the car's value, though deposit contributions from the dealer can reduce this.
- Monthly payments: You pay for the car's depreciation over the term — typically two to four years. Because you're not paying off the full value, monthly costs are lower than HP.
- Guaranteed Minimum Future Value (GMFV): Also called the balloon payment — the estimated value of the car at the end of the term, set by the finance company at the outset.
Your Options at the End
- Hand the car back: No further payment required, subject to fair wear and mileage conditions being met.
- Pay the balloon and own the car: Make the final payment (GMFV) and the car is yours.
- Part-exchange: If the car is worth more than the GMFV, use the positive equity as a deposit on your next PCP deal.
Watch Out For
- Mileage allowances — exceeding them incurs per-mile charges
- Condition requirements — damage above "fair wear" is chargeable
- Total cost — the APR on PCP deals is often higher than personal loans
Is PCP Good Value?
For those who like driving a newer car regularly, PCP offers flexibility. For those who want to own a car long-term, a personal loan or HP may be cheaper overall.
