Personal Contract Purchase (PCP)
Personal Contract Purchase is a UK car finance agreement with a deposit, lower monthly payments than HP, and a large optional final payment at the end. At the end of the term, you can pay the final balloon payment to keep the car, hand it back, or use any equity towards a new agreement.
You take out PCP on a £25,000 car with a £2,500 deposit and £15,000 financed over four years, with a £9,000 optional final payment. Monthly payments are based on the difference between the financed amount and the final value, not the full price.
- PCP monthly payments are lower than HP for the same car, but the total cost can be higher once interest and the final payment are included.
- You do not own the car during a PCP agreement and do not own it at the end unless you pay the optional final payment. Many drivers hand the car back instead.
- Mileage limits matter. Going over the agreed annual mileage triggers per-mile charges at the end.
Why it matters
PCP dominates new-car finance in the UK because monthly payments are lower than HP for the same car. Lower payments make new cars feel more affordable, but the trade-off is that you have not paid for the car at the end of the agreement. You have paid for the depreciation between its starting value and its forecast end value (the Guaranteed Minimum Future Value, or GMFV), plus interest.
At the end of a PCP term you have three options:
- Hand the car back at no further cost (assuming you are within mileage and condition limits)
- Pay the optional final payment (the GMFV) to keep the car
- Use any equity (if the car is worth more than the GMFV) as deposit on the next PCP
PCP suits drivers who like changing cars every few years and accept they are renting depreciation rather than buying ownership.
Common confusion
The most common confusion is around total cost. PCP looks cheaper monthly than HP, but if you add deposit, monthly payments and the final balloon payment together, the total can be higher than HP on the same car because the interest is charged on the financed amount (which includes the GMFV) over the term.
Another confusion is the recent discretionary commission scandal in motor finance. Many PCP and HP agreements sold before 2021 included undisclosed commission arrangements that may now qualify for compensation. The FCA’s review is ongoing; the Supreme Court has ruled on related cases. If you took out a car finance agreement before 28 January 2021, you may have a complaint or claim. Check the FCA’s guidance and use free help routes rather than fee-charging claims companies.