What does PCP stand for?

PCP stands for Personal Contract Purchase. It is a type of car finance where you pay a deposit and lower monthly payments, then choose at the end whether to pay an optional final payment to keep the car, hand it back, or part-exchange it.

What is the balloon payment on PCP?

The balloon payment, also called the Guaranteed Minimum Future Value (GMFV), is the optional larger final payment set at the start of the agreement. It reflects the car's predicted value at the end of the term. You only pay it if you decide to keep the car; otherwise you can hand the car back or part-exchange it.

Do I own the car on a PCP agreement?

No. During a PCP agreement the finance company owns the car. You only own it if you choose to make the optional final payment at the end of the term.

Is PCP cheaper than HP?

PCP usually has lower monthly payments than Hire Purchase because part of the cost is deferred to the final payment. However, if you keep the car by paying the final payment, the total amount you pay overall can be higher than HP, partly because interest is charged on the deferred amount too.

What happens if I go over my mileage limit?

PCP agreements set an annual mileage limit. If you exceed it, you will usually pay an excess-mileage charge for each additional mile when you return or part-exchange the car. Your agreement will state the per-mile rate, so it is worth choosing a mileage limit that fits how you drive.

Can I get PCP with bad credit?

Some lenders consider applicants with a limited or adverse credit history, but acceptance is never guaranteed and depends on the individual lender's criteria and your affordability. We cannot promise acceptance. You can explore your options with no initial impact on your credit score, and a hard credit search only takes place later, with your consent.

Can I settle a PCP agreement early?

Yes. Under the Consumer Credit Act you can usually settle a regulated PCP agreement early by requesting a settlement figure from your lender. The amount depends on how far through the term you are. There may also be an option to hand the car back once you have paid a certain proportion (voluntary termination). Check your agreement and speak to your lender for the exact figures.

Will checking my options affect my credit score?

Checking your options with us has no initial impact on your credit score, because it uses a soft search. If you decide to proceed, a lender may carry out a hard credit search later, and this only happens with your consent.

✓ Soft search only · no initial impact on your credit score

PCP Car Finance: Lower Monthly Payments With Flexible Options at the End

Personal Contract Purchase (PCP) is a way of financing a car that usually gives you lower monthly payments than Hire Purchase, because a large chunk of the cost is deferred to an optional final payment at the end. You do not own the car during the agreement — you have three choices when it ends: pay the final "balloon" payment to keep it, hand it back, or part-exchange it for a new one. This page explains how PCP works, who it suits, what lenders look at, and the costs and risks to weigh up before you apply. Trusted Car Finance is a credit broker, not a lender. You can explore your options with no initial impact on your credit score; a hard credit search only happens later, with your consent.

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In one sentence

PCP splits the cost of a car into a deposit, lower fixed monthly payments that cover the car's expected depreciation, and an optional larger final payment (the balloon) that you only pay if you decide to keep the car at the end.

Who PCP is for

PCP tends to suit drivers who want lower monthly payments and like the flexibility of changing their car every few years rather than owning one outright for the long term. It can appeal if you enjoy driving a newer or higher-value car than you could otherwise afford month to month, and if you are comfortable staying within an agreed annual mileage limit. It is less well suited to high-mileage drivers, people who want to own the car outright as cheaply as possible over its lifetime, or anyone who prefers certainty over the final value of their car. If long-term ownership is your goal, Hire Purchase may be a better fit — see the alternatives below. Whether PCP is right for you depends on your circumstances, and any finance is subject to status, affordability and lender criteria.

How PCP works

A PCP agreement has three parts. First, an optional deposit — the more you put down, the lower your monthly payments tend to be. Second, monthly payments spread over a fixed term (commonly two to four years); these mainly cover the difference between the car's price and its predicted value at the end, plus interest, which is why they are usually lower than Hire Purchase for the same car. Third, an optional final payment, known as the balloon payment or Guaranteed Minimum Future Value (GMFV), which the lender sets at the start based on the car's expected worth at the end of the term. When the agreement ends you choose one of three routes: (1) pay the final payment and keep the car outright; (2) hand the car back with nothing more to pay, as long as it is within the agreed mileage and in fair condition; or (3) part-exchange it, using any equity above the final payment towards a deposit on your next car. The agreement will also set an annual mileage limit and a fair-wear-and-tear standard, and you will not own the car until any final payment is made.

Eligibility

To be considered for PCP car finance in the UK you will usually need to be at least 18, hold a valid UK driving licence, and be a UK resident with an address history the lender can verify. Lenders assess affordability, so they will want to see stable income and evidence that the repayments fit comfortably within your budget. Different lenders accept different credit profiles, and some specialise in helping people with a limited or adverse credit history. Being eligible to apply does not mean acceptance is certain — every application is assessed individually against the lender's own criteria, and approval and any rate offered depend on your circumstances. We cannot promise acceptance, and no responsible broker or lender can.

What lenders look at

When you apply, a lender typically reviews: your credit history and credit score (how you have managed borrowing in the past); your income and outgoings to check the payments are affordable; your employment status and how long you have been in your role; your address history and time at your current address; the amount you want to borrow relative to your income; the car itself, including its age, mileage and value, because it acts as security on the agreement; and the deposit you can put down. For PCP specifically, lenders also consider the car's predicted future value, since that underpins the final payment. Providing accurate, complete information helps the lender make a fair assessment.

Pros and risks

Pros: monthly payments are usually lower than Hire Purchase for the same car; you get flexibility at the end of the term to keep, return or upgrade the car; you may build equity if the car is worth more than its final payment; and you can drive a newer car more affordably month to month. Risks and things to weigh up: you do not own the car until you make the final payment, and it can be repossessed if you fall behind (once a set amount is paid, in some cases the lender needs a court order); annual mileage limits apply and going over them means extra charges; you can face charges for damage beyond fair wear and tear; the total cost of ownership can be higher than Hire Purchase if you keep the car; and if you want to keep it you need to find the final payment, which can be a large sum. Missing payments can harm your credit score and lead to the car being taken back. Only take on finance you are confident you can afford for the whole term.

Documents you may need

To speed up an application, it helps to have the following ready: proof of identity (such as your UK driving licence or passport); proof of address (recent utility bills, bank statements or council tax); proof of income (payslips, or accounts and tax calculations if you are self-employed); bank details for the direct debit; and your address history, usually covering the last three years. If you have already found a car, details of the vehicle and dealer are useful. Lenders may ask for more depending on your circumstances.

Alternatives to PCP

PCP is one of several ways to finance a car, and it is worth comparing them before you decide. Hire Purchase (HP) spreads the full cost of the car over the term with no large final payment, so payments are typically higher but you own the car outright once the last payment is made — often better for long-term ownership and high-mileage drivers. A personal loan lets you borrow the money and buy the car outright, so you own it from day one and there are no mileage limits, though the loan is unsecured and rates depend on your credit profile. Leasing (personal contract hire) is long-term rental with no option to buy at the end. Refinancing an existing agreement may lower your payments if your circumstances have changed. The right choice depends on how long you want to keep the car, your mileage, and your budget.

Costs and APR

The total cost of PCP depends on the amount borrowed, your deposit, the term length, the interest rate (APR) you are offered, the size of the final payment, and any fees. Because a large part of the car's value is deferred to the final payment, PCP interest is charged on that deferred amount too — so while monthly payments are usually lower than Hire Purchase, the total amount you pay if you keep the car can be higher. Watch for extra charges such as an option-to-purchase fee, excess-mileage charges if you exceed your annual limit, and fair-wear-and-tear charges for damage beyond normal use when you hand the car back.

A representative APR and a representative example will be shown here once we are appointed and the exact figures are approved. The rate and terms you are offered are personal to you and may differ from any representative figure.

For full details of how we are paid, see our commission disclosure.

Frequently asked questions

What does PCP stand for?: PCP stands for Personal Contract Purchase. It is a type of car finance where you pay a deposit and lower monthly payments, then choose at the end whether to pay an optional final payment to keep the car, hand it back, or part-exchange it.
What is the balloon payment on PCP?: The balloon payment, also called the Guaranteed Minimum Future Value (GMFV), is the optional larger final payment set at the start of the agreement. It reflects the car's predicted value at the end of the term. You only pay it if you decide to keep the car; otherwise you can hand the car back or part-exchange it.
Do I own the car on a PCP agreement?: No. During a PCP agreement the finance company owns the car. You only own it if you choose to make the optional final payment at the end of the term.
Is PCP cheaper than HP?: PCP usually has lower monthly payments than Hire Purchase because part of the cost is deferred to the final payment. However, if you keep the car by paying the final payment, the total amount you pay overall can be higher than HP, partly because interest is charged on the deferred amount too.
What happens if I go over my mileage limit?: PCP agreements set an annual mileage limit. If you exceed it, you will usually pay an excess-mileage charge for each additional mile when you return or part-exchange the car. Your agreement will state the per-mile rate, so it is worth choosing a mileage limit that fits how you drive.
Can I get PCP with bad credit?: Some lenders consider applicants with a limited or adverse credit history, but acceptance is never guaranteed and depends on the individual lender's criteria and your affordability. We cannot promise acceptance. You can explore your options with no initial impact on your credit score, and a hard credit search only takes place later, with your consent.
Can I settle a PCP agreement early?: Yes. Under the Consumer Credit Act you can usually settle a regulated PCP agreement early by requesting a settlement figure from your lender. The amount depends on how far through the term you are. There may also be an option to hand the car back once you have paid a certain proportion (voluntary termination). Check your agreement and speak to your lender for the exact figures.
Will checking my options affect my credit score?: Checking your options with us has no initial impact on your credit score, because it uses a soft search. If you decide to proceed, a lender may carry out a hard credit search later, and this only happens with your consent.

Explore your PCP options

Check your car finance options with no initial impact on your credit score; a hard credit search only happens later, with your consent. Trusted Car Finance is a credit broker, not a lender.

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