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What is Personal Contract Purchase (PCP) Finance?

Drive away with more money in your pocket. Learn about the benefits of financing your next car on a Personal Contract Purchase (PCP) agreement. Check out this handy guide to find out everything you need to know about PCP agreements and how they work.

How does PCP finance work?

Are you someone who likes to regularly change your car? A Personal Contract Purchase (PCP) agreement could be the right finance option for you. PCP essentially it’s a loan to purchase the vehicle, but instead of paying for the car in full you spread the cost over an agreed number of months with a deposit and then monthly payments.

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What could make PCP a potential option for you?

  • You don't like to keep the same car for more than 2-3 years
  • You want to make low monthly payments with the option to buy at the end of your agreement
  • You have a deposit to put down that could make your monthly repayments lower
Finance at Carverse Used Car Supermarket, Knebworth, Hertfordshire

What happens at the end of a PCP agreement

A PCP agreement is usually between 2 - 4 years. These are your options when it ends:

Option 1 - Return the car

If you return the car in good condition and within the agreed mileage then you don't need to make additional payments. If not, you may need to pay additional charges. Please make arrangements to return your car on time and let us know if there are going to be any delays.

Option 2 - Own the car

At the end of the agreement, there'll be a balloon payment which is the predicted value of what the car will be worth. This is also the final amount you'll need to pay if you decide to own it. Including any purchase fees, if you decide to make this payment you'll then own the car.

Option 3 - Part exchange for another car

If the actual market value of your car is higher than what the lender predicted when you took out your PCP agreement, you can put the difference towards buying (financing) a new car, if you would like to.

Finance at Carverse Used Car Supermarket, Knebworth, Hertfordshire

Alternative finance to PCP

If you think Personal Contract Purchase is not for you and you'd rather own the car outright, HP (or Hire Purchase) is the option for you. You pay high monthly instalments to become the cars legal owner and there's no final balloon payment - it's that simple.

Learn more about Hire Purchase (HP)



Personal Contract Purchase FAQs

What are the advantages of PCP?

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What are the advantages of PCP?

  • ​Monthly payments on a car financed by PCP are usually lower than if your car is financed by a Hire Purchase agreement.
  • if you decide not to buy the car, you can simply walk away when you've made all the payments.
  • Similar to PCH, you can drive away a new or used car every few years (dependent on the chosen term) without worrying about selling it on.
  • If your car is worth more than the Guaranteed Future Value then you can use that equity towards a deposit on a new car.

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​What should you consider when opting for PCP?

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​What should you consider when opting for PCP?​

  •  If you are planning on keeping the car after your agreement ends, you will need to pay your final balloon payment (the Guaranteed Future Value).
  • At the beginning of your contract, you will need to agree to a mileage allowance. There may be excess mileage charges if you exceed this so it's best to agree to a realistic figure.
  • Without settling the finance, you will not be able to sell the car
  • You won’t own the car until you have made all of your repayments.
  • You’ll need to keep the car properly insured, maintained and in your possession until the full value is paid off.

​Can I settle my PCP agreement early?

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Can I settle my PCP agreement early

You can normally settle your agreement early by asking the finance company to provide you with a settlement figure. However, the finance company will require you to pay off the difference between what your car is worth, and what you still owe and there may be a difference which is known as negative equity. On the other hand, you may find that at the end of your term your car is worth more than the Guaranteed Future Value, which means you will have some positive equity to contribute towards your next car.