PCP: small monthlies, big flexibility.
Personal Contract Purchase is the most popular way in the UK to drive a newer car for less each month. Here is how it works, including the parts other brokers tend to mumble through.
How it works
Three parts to one deal
A PCP agreement splits the car's price into a deposit, a run of monthly payments and an optional final payment, known as the balloon or Guaranteed Minimum Future Value (GMFV).
Because part of the vehicle's cost is deferred to an optional final payment, PCP monthly payments can be lower than equivalent HP payments on the same vehicle.
- Deposit is usually around 10%, and sometimes zero deposit options are available.
- Monthly payments cover the estimated vehicle depreciation plus interest.
- The final payment is set at the start and represents the vehicle's guaranteed minimum future value.
PCPdeferred balloon lowers regular monthly payments
3flexible choices at agreement end
How it ends
Three choices, total flexibility
- Return the vehicle. Return the vehicle, subject to the terms of the agreement. Charges may apply, for example where mileage limits have been exceeded, the vehicle's condition falls outside the lender's acceptable standards, or other amounts remain due.
- Trade it in. Part-exchange the car with a dealer. If the vehicle's market value exceeds the optional final payment, you can put the surplus equity towards your next deposit.
- Keep it. Pay off, or refinance, the optional final payment to take full legal ownership of the vehicle.
PCP vs HP
PCP and HP side by side.
| Feature | PCP | HP |
|---|---|---|
| Monthly payments | Lower regular payments | Higher regular payments |
| Own the car at the end | Optional (upon paying balloon fee) | Ownership passes upon final payment |
| Mileage limits | Agreed annual mileage applies | None |
| Option to return car | Yes (subject to condition & mileage) | No |
| Best for | Changing cars every two to four years | Keeping the vehicle long-term |
Find your PCP options
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Checking your eligibility initially involves a soft search, which will not affect your credit score.
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