Personal Contract Purchase Finance Deals
Personal contract purchase (PCP) is a type of secured car finance. It’s offered by the majority of car dealerships, high street banks and also specialist lenders. What makes it popular is the lower monthly payments when it’s compared to other forms of finance. These lower fees mean you don't automatically own the car at the end of the term - so you're not paying off the car's full value. Instead there are three options at the end of your term:
- Own your car outright: You have the option to purchase the car at the end with a
"balloon" payment. This amount is set at the start of a purchase agreement and is
known as the Guaranteed Future Value, or GFV.
- Return your car and walk away: Unless you’ve gone over your agreed mileage
allowance, or returned it in bad condition, this won’t cost you anything and you’ll be
free to walk away.
- Upgrade your car: Lenders may also offer you an "upgrade" near the end of the contract to keep your custom. So it's a great option if you want to drive a new car every couple of years.
If you’ve got all the information you need on PCP you can apply for car finance through ChooseMyCar now, or try out our car finance calculator. Alternatively, you can find out about other types of car finance options that may be available to you including Hire Purchase, Personal Contract Hire, or alternatively a Personal Loan or Guarantor Loan.
Is Personal Contract Purchase (PCP) car finance right for me?
Personal Contract Purchase: Things to Consider
- If you definitely want to own the car outright, a comparable hire purchase deal almost always works out cheaper overall - despite the lower monthly fees on a Personal Contract Purchase.
- With a PCP contract, you're responsible for servicing the car and keeping it in good
condition. The lender will usually impose a limit on the number of miles you can drive
- typically between 8,000 and 12,000 per year.
- Bear in mind, the best PCP deals usually require a good credit score - for car finance options for bad credit, read our guide.
Other guides related to car finance
Other Types of Car Finance
Frequently Asked Questions
This will vary depending on the type of car finance and your own credit score. Below are some representative examples of good APR rates for the different types of car finance:
Hire Purchase: 9.46%
Personal Contract Purchase: 5%
Personal Loan: 2.8%
The above are purely representative and are based on a good credit rating.
The amount you can afford to spend on a car will vary depending on your situation. The important thing is to make sure you can afford any repayments that your car finance agreement sets out. Missing repayments can cause issues between you and your lender and could end up in court or affecting your credit rating.
To work out what you can afford, try our car finance calculator.
The overall cost of car finance will vary depending on the type of car finance that you choose.
The cost of getting a car on finance will be the overall cost of the car, plus any interest owed over the term agreed.
For a personal contract hire agreement it’s worked out slightly differently; the amount you pay is calculated by the cost of the depreciation of the car over the term agreed.
Some types of car finance may also include fees for excessive mileage, any damage to the car or a maintenance cost, so keep an eye out for this.
If you want to find out what you can afford, check out our car finance calculator.
A voluntary termination agreement lets you cancel your car finance early. By law, you can voluntarily terminate a HP or PCP contract.
You can cancel HP and PCP agreements if you''ve paid back 50% of the total finance amount - and if the car's in good condition. The PCP balloon payment is included in the 50% - so you''d have to pay half of this too.
Not repaid enough yet? You may be able to pay the difference up front and then cancel the contract. But if you terminate after you''ve already repaid over 50%, you won't receive a refund.
Bear in mind, voluntary termination may appear on your credit file. But it probably won't affect your score.
Selling your car with outstanding finance depends on the type of car finance you have.
On a hire purchase agreement you technically can't sell your car, but if you've repaid 50% you may be able to return it to your lender, or else pay the remaining fees before you sell it on.
On a PCP agreement it works in the same way as the hire purchase in terms of returning it. However, as you'd have to opt in to owning the car at the end with the additional cost of the balloon payment.
You can sell a car on a personal loan agreement, but it will still be on you to make the repayments from the original agreement.
You cannot sell your car on a personal contract hire agreement as it's never yours to sell.
On a PCP finance deal it’s a good idea to be wary of the size of your deposit. Using all of your savings to pay a big deposit, while making monthly repayments lower, can cause issues further down the line.
You must consider whether you can afford the balloon payment if you wish to keep the car at the end and, if you can’t, whether you will have enough to place a deposit on another finance deal.
PCP deals are generally between 36-60 months.
A longer term will allow you to keep the repayment costs down. It’s worth considering a few things however, such as when a car may need its MOT or whether the value of a used car will drop considerably over that period.
The lender is the legal owner of the vehicle at all times, even at the end of the agreement. You can however have the option of paying a balloon payment to acquire ownership of the car at the end of the agreement.
You have two options for paying off your PCP deal.
- If you have paid half of the value you can return the car, or if you have paid less than half you can pay up to half the value and then return it.
- If you have paid over half you can pay off the rest of the value and either return it, or pay a balloon payment to keep it.
A mileage allowance is worked out between you and the lender. This is created through an estimation of your annual mileage. For a higher number of miles you may be charged a higher rate. Make sure you add a cushion, as a change in circumstances could cause your overall mileage to increase.
If you go over your agreed limit you will be charged.