Personal Contract Purchase (PCP)

Personal Contract Purchase (PCP) is a popular car finance option that allows you to pay monthly instalments that cover the car’s depreciation during the term of the loan. At the end of the loan agreement, you then have three options: return the car, pay a balloon payment to keep the car, or use the car as a part exchange (deposit) on finance for a new car.

Our customer advisors are always happy to help and discuss your options with you - simply complete our quick online application form (does not affect your credit score or put you under any obligation), and a friendly advisor will call you back asap. 

“Out of all the options, Personal Contract Purchase best suited my circumstances.”

“I decided to choose Personal Contract Purchase because of the three options at the end of the agreement. I like that I can choose between paying the balloon payment to own the car, refinancing on a new car or returning the car. It means I have more flexibility which is something I look for in a finance package.”

- Jack from Hammersmith

Personal Contract Purchase: Key Features

  • Suitable for those with a Good credit rating
  • Ideal for those with a large deposit
  • Lower monthly payments - you only pay the difference between the purchase price and Guaranteed Future Value
  • Depreciation is covered in the monthly payments
  • Monthly cost is driven by annual mileage
  • Three options at the end of a PCP agreement: return the car to the dealership; pay the balloon payment to own the car (set at the start of the finance agreement); part exchange the car on a new finance agreement.

Is PCP suitable for me?

Personal Contract Purchase is ideal for those with a good credit profile who want to change cars regularly.

One of the main differences between PCP and a more traditional Hire Purchase loan, is that you won’t be owning the car at the end of the agreement unless you pay the balloon payment. Effectively you are paying for the depreciation of the car during the loan term alongside your agreed interest rate.

By paying for the depreciation of the car and thus reducing monthly payments, the choice of cars you can afford under PCP is much wider. For example, using PCP you may be able to look at a newer version of the car that you were originally interested in.

If you choose to take out a PCP then you would normally pay a deposit. This varies as every applicant for a PCP loan is considered carefully and on an individual basis, bearing in mind their personal credit profile and what they can realistically afford given their monthly income and outgoings.

However, a typical deposit amount would be 10% of the car’s value. The loan will then cover amount equivalent to the depreciation value of the vehicle during the term of the loan. Of course, the more deposit you pay, the lower the monthly payments they will be required to pay.

Remember that during a PCP loan term the car remains under ownership of the car finance provider, which comes with certain restrictions to protect the company from a loss not included in the calculated depreciating value. See the section below regarding additional charges for details.

What if I want to keep the vehicle at the end of the PCP deal?

If you decide you would like to keep the car come the end of your loan agreement, you will simply be required to make a final balloon payment equivalent to the Guaranteed Minimum Future Value (i.e. what the car is now worth). Once the balloon payment has been paid and the necessary paperwork completed, the car is under your ownership.

Is there a possibility of additional charges at the end of the loan agreement?

Yes, but these are easily avoidable and made clear at the beginning of the agreement. As long as you abide by the agreement in full and take good care of the vehicle, you will not be charged anything extra. These charges are simply to cover the finance provider from additional costs that are not covered by ‘normal’ vehicle depreciation.

Over-mileage

When you take out a PCP deal you are expected to abide by the annual mileage limit agreed between you and the provider. If the agreed mileage has been exceeded, then a charge will be incurred which will have been made clear to you and agreed upon prior to the loan agreement going ahead.

Damages

Any damage occurring to the vehicle during the loan term may incur a charge which again will be made clear from the outset. However, this does not include the normal wear and tear which is expected and accounted for under the depreciation value. When you return the vehicle, it will be inspected for damage and if the damage is classed as excessive wear and tear, a penalty charge may be incurred.

Any damage that has occurred will need to be fixed via the guidelines laid forth in the agreement. This is to ensure the damage has been repaired to the correct standard and by an appropriate mechanic.   

Unsure if PCP is the right option for you?

We discuss PCP in more detail over at our car finance glossary page and include common question and answers on this car finance option, please visit: Personal Contract Purchase explained

If you feel like the PCP option is not right for you then why not have a look at our other finance options like Hire Purchase and Lease Purchase. We also have a interactive Car Finance Options Tool designed to help you work out which is the best option for you.

Other options are available for business customers, please visit our dedicated business car finance page or call to discuss with one of our experienced customer advisors.

Alternatively, why not speak to one of our advisors who are more than happy to help you. You can either make an application online (which will not affect your credit score or put you under any obligation), or call our customer advisor team directly on 0800 1777 290.

Got a question for us?

If you require further assistance, our team of Customer Advisors are here to help. We're open six days a week - you can view our opening hours here - and we're more than happy to answer your questions.