Personal Contract Purchase (PCP)

PCP can be a great way to get to drive a newer car than you couldn’t normally afford – but it’s essential to do your sums beforehand so you can be confident you won’t run into difficulties.

With PCP, as with HP, you choose the car and the finance company pays the dealer. You still pay monthly instalments to the finance company as with other forms of credit, but you are only paying for part of the total amount due. The rest is due as a lump sum (balloon payment) at the end of the repayment period. This means you pay less each month for a car of the same value than you would with a traditional HP plan. At the end of the repayment period you can simply give the car back and start again with a newer vehicle. Alternatively, you can pay the pre-agreed balloon payment and buy the car.

There are a couple of possible complications around returning the car. First, it has to be in good condition—you’ll be charged for the costs of any damage. Second, you have to estimate your mileage at the start. If you go over, you'll be charged (say 10c a mile) for every mile above the estimate, unless you renegotiate beforehand.

  • Fixed monthly repayments – Yes
  • Repayment periods available – Typically 12–36 months, but can be longer
  • Deposit – Minimum deposit is usually 20%
  • Best for – People who like to update their car every few years and are happy not to be car owners. If you want to buy a car outright, other finance options will probably work out cheaper overall.


Who owns the car?

The finance company own the car during the repayment period. If you choose to buy the car at the end of the period rather than giving it back, it becomes yours once you’ve made the final balloon payment.


Flexibility to sell/pay off early

If you want to sell the car before the end of the term, you’ll have to pay the agreement off early. This will almost certainly cost you a lot more than if you waited until the end, because of the way depreciation is worked out.


Getting behind with payments

Fall behind with payments, and the finance company can take the car back. They will sell it and use the money to repay your debt. If they don’t get enough, you’ll have to pay the difference plus any court costs. If you have paid (or can pay) 50% of the total owed, you can choose to give the car back. You will have to pay for any missed installments due up to the time you end the agreement. You may also find it harder to get credit after.