
Cheap Personal Contract Purchase
How to find the best deal for you
If you need a new car, but don't have the cash to pay for it, then car finance could be a way to get behind the wheel of one – though it's a big commitment. Here we've broken down the basics of personal contract purchase (PCP) so you can work out whether it's right for you.
Not the car finance option you were looking for? Check these out...
Personal car loan | Hire purchase (HP) | Car leasing

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What is personal contract purchase?
Personal contract purchase (PCP) is basically a loan to help you get a car. But unlike a normal personal loan, you won’t be paying off the full value of the car and you won’t own it at the end of the deal (unless you choose to pay the final balloon payment).
It’s one of the more complex financial products available to help you buy a car, but it can be broken down into three main parts:
- The deposit (usually around 10% of the car's price). Dealers offering PCP finance will typically want around 10% of the car as a deposit. Some car manufacturers' finance arms offer valuable ‘deposit contributions’ of £500-£2,000 or more if you're buying a new car but only if you take their finance. The larger the deposit, the less you'll have to borrow.
- The amount you borrow. The amount you'll have to borrow is based on how much the finance company predicts the car will lose in value over the term of the deal (usually 24 or 36 months) minus the deposit you've put down. You’ll pay this amount off during the deal, plus interest. So you’re not paying off the full value of the car. Typical APRs start from around 4%.
- The balloon payment (a large final payment you pay IF you want to own the car). Also referred to as the Guaranteed Future Value (GFV), this is how much the dealer expects your car to be worth after your finance deal ends, agreed at the start of your deal. You don’t have to pay this, as you get a choice of what to do at the end of the deal. But it is the sum you’ll pay if you want to keep the car.
Be wary of 0% deals - they can be too good to be true. Some dealers offer 0% interest. Take these deals with a pinch of salt though, as they are likely to try to recoup their losses somewhere else by, for example, inflating the balloon payment or making the ticket price more expensive than if you would have bought the car outright (where they could have been more likely to offer you a 'discount' on the price).


How does it work?
Ok, so this might sound a bit complicated so here's an example to explain how it works.
Let's imagine you sign up for a PCP over three years. The car costs £20,000 and the finance company calculates that the car will be worth at least £8,000 after three years. Here's how that would look...
- You pay a 10% deposit, eg, £2,000 with a loan for the rest, so £18,000
- You then owe £18,000. Though, as it's been agreed that the car will be worth £8,000 at the end, you only need to repay £10,000 (plus the interest on the entire £18,000) over the three year period
- At the end of the agreement, you either pay the final £8,000 to keep the car or you can choose to hand the car back
Importantly, even if you hand the car back, you will still have paid interest for the full loan amount (£18,000) over the three year period.
What happens at the end of the finance deal?

We mentioned that you can buy the car at the end of the deal but you don't have to - in reality you have three options:
1. Buy the car by paying the balloon payment. Pay this then you'll own the car outright. Do note that most finance companies charge an added fee if you buy the car - this covers admin costs to transfer the car. It can be up to £500 but is usually lower, around £100 is standard.
2. Get a new car. This is the most common option for people taking a PCP deal. Usually at the end of a PCP deal, the car will be worth slightly more than the balloon payment. And if this is the case, your dealer will usually ask if you want to use that 'equity' as a deposit on a new PCP deal on a brand new car. For example, if the car’s actual value at the end of the deal in the example above was £9,000 and the balloon payment is £8,000, you’d have the difference of £1,000 that you could use as a deposit to roll into another deal.
Many go for another PCP, but you don’t have to. Sadly, you can't take the extra as cash - unless you buy the car and then sell privately (or get agreement from the finance company to sell it & then pay off the finance).
You don’t have to worry about the car being worth less than the balloon payment - that is if it's lost more value than was expected at the start of the deal. If that happens, the sensible course is just to hand the car back - the finance company takes the hit.
3. Hand the car back and walk away. This means you have nothing more to pay, though you could face damage and over-mileage charges...
What charges could I face if I hand the car back/trade it in?
You could face charges if you hand the car back, whether that's trading it in, or just handing it back and walking away. There are two main types of charges, but both are avoidable:
Over-mileage charges. At the start of a PCP deal, you'll be asked to specify how far you'll drive the car each year. This is so the dealer can accurately assess the car's worth at the end of the deal to set its future value. A car that's done 10,000s of miles will be worth a lot less than a car that's only been used infrequently.
It's important to be as accurate as you can, as if you go over the agreed mileage limit, the finance company can charge for every mile you are over, often around 10p per mile. Be careful as this can soon tot up. For example, at that price, an extra 1,000 miles would cost you £100.
- Damage charges. Just like when you rent a car, the finance company will check it for damage when you hand it back. Normal wear and tear is acceptable, but the car needs to be in a sale-able condition, which means you'll likely be asked to pay to put right any large scratches or damage anywhere on the car.
You can avoid these charges by agreeing a sensible mileage, and taking good care of the car. If there's damage, it's worth going to an approved service centre to see if it'll cost less to fix than the finance company will charge - it may be worth getting it fixed yourself.
Quick question
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Is PCP the right option for me?

If you want to change your car in a few years’ time, PCP could suit you. If you are going to keep it for longer than that, you may be better off with hire purchase or a personal car loan.
These will cost more each month as these payments work to clear the full balance, but you will own the car without taking a big balloon-payment sized hit at the end. If you do opt to keep the car, PCP is generally more expensive than hire purchase.
Only around a fifth of people with a PCP deal actually go on to buy the car. If you know you won't buy it from the outset, it's also worth looking at car leasing, as it may be a better option. You don't get the chance to own the car, but it's often cheaper per month. Essentially, you’re just renting the car for an agreed period, so it’s worth contrasting this cost against PCP.
Here are the pros and cons of PCP:
Pros
Monthly payments are generally lower than a personal loan or hire purchase.
You don’t need to worry about the future trade-in or resale value of the car, as the lender guarantees your car will be worth a minimum sum at the end of the deal (though you could be charged for any damage deemed to be outside normal wear and tear).
It's relatively flexible. You've several options at the end of it, including the option to buy the car.
Dealers will often throw in service and maintenance packages, warranties and insurance so you can get your total cost of motoring down to one payment each month (though check these are free, or if not, represent good value).
A PCP may let you buy a more expensive car than you might otherwise be able to afford but with monthly payments to suit your budget.
Cons
You won’t own the car during the contract period – and will only own it at the end if you pay the balloon payment.
Interest rates are generally higher on PCP than on personal loans.
If the predicted future value is set very close to the actual value of the car you will have little equity to roll onto another deal. If there isn’t any, you will have to get your hands on another deposit for a replacement car elsewhere.
Extra charges of around 10p per mile if you go over the agreed set mileage.
The future value is based on keeping the car in good condition. You’ll be charged extra to put right anything that’s not down to normal wear and tear.
Different car finance options compared
Broadly speaking, there are six different ways to pay for a car. The table has the key differences at a glance.
Finance type | Typical length of agreement? | Initial deposit required? | Who owns the car? | Mileage restrictions? |
None – cash savings | N/A | N/A | You | No |
0% credit card | Up to 20 months | No | You (though you'll still need to repay the debt) | No |
Personal loan | 1-7 years | No | You (though you'll still need to repay the debt) | No |
Personal Contract Purchase | 1-5 years | Yes (i) | The finance company, unless an optional final balloon payment is made | Yes |
Hire purchase | 1-5 years | Yes (i) | The finance company, until the final repayment is made | No |
Leasing/Personal Contract Hire | 1-4 years | Yes (i) | The finance company, at all times | Yes |
(i) In most circumstances, though sometimes you can get a deposit contribution from the dealer or structure a lease deal to pay nothing upfront.
So which wins?
Sadly, there is no one-size fits all answer to this (as much hangs on whether you want to own the car and other factors). However, we've included more information on each option below, to help work out which is right for you.
Where can I get a PCP deal?
There are two main options here. The most common is to get the finance through the dealership you're buying from. However, before you start, there are some online brokers that have decent offers when you're looking for a PCP deal. It's worth getting quotes elsewhere first so you're able to compare the offer from any dealer, plus if you take a copy of the cheapest quote along you can ask it to match or beat it.
Whichever you opt for, remember the finance provider will own the car throughout unless you opt to pay the final payment. If you choose instead to return the car, you could face additional charges for any damage (above normal wear and tear) or if you've exceeded the agreed mileage allowance. The finance provider will usually appoint someone to inspect the car when it's returned to advise if anything further is owed.

PCP deals can be found from a handful of lenders and brokers. These are handy to get an idea of the prices and repayments you might be looking at on your ideal car. Brokers offer a wide range of deals, including those for buyers with a tarnished credit history. They simply supply the finance through a variety of lenders.
If you are asking for a quote from any of these brokers, check whether they will do a hard or soft search of your credit file to give you a quote. If it's a hard search, be wary, as this is fully visible on your credit file to other lenders as an application, even if you then don't take out the loan. Too many of these in a short space of time is a red flag, so think carefully.
Some brokers will also be able to source vehicles for you, as well as finance. But you can still get your car from any dealer in the UK, and just use the broker for the loan. Funds will be sent to the dealer after the finance agreement's signed. Here are a few to compare:
- High street banks (for existing current account customers only). Halifax offers a Flex Car Plan PCP deal, with a rep APR of 6.4% if you're borrowing £25,000 or less, or 4.9% rep APR if you're borrowing between £25,000 and £60,000. It doesn't credit check you, though you need to have had a current account with it for at least three months and will need to pass its affordability checks.
Bank of Scotland and Lloyds Bank also offer similar PCP deals to their current account customers. The rate of interest is 6.4% rep APR when you're borrowing less than £25,000 and 4.5% rep APR when you're borrowing more. The maximum amount you can borrow is £60,000.
- Admiral. Best known for car insurance, Admiral* also offers PCP for nearly new and used cars, with a rep APR of 7.9%. It has its own eligibility calculator which will show you if you'll be accepted before applying.
- Zuto. Broker site Zuto* also has its own eligibility calculator, so you can see if you'll be accepted without marking your credit score. Its rates start at 9% though, with a representative APR of 19.8% (and some could get much higher) so always check if you can get cheaper credit elsewhere.
Dealer finance
Sometimes known as forecourt finance, or just car finance, it's offered by almost every dealership in the UK - and PCP is one of the options they offer. Dealerships come in three main types: franchised (tied to one or more manufacturers, eg, BMW garages), independent (not tied) and car supermarkets. Sites such as Car Wow and Drive the deal are useful here, as they allow you to compare deals from dealers nationally. This means you may find a much cheaper offer from a dealer 200 miles away from you (eg, it has stock to clear), which you may otherwise have missed.
Getting a PCP through the manufacturer's finance arm
In a franchised dealership, finance deals are usually arranged through the car finance arm of a manufacturer – so Ford Credit, for example, or Volvo Financial Services. It's definitely worth looking at what these dealerships can offer you on a finance deal, especially if you're buying a new car.
If this is the case, it's not uncommon for the manufacturer to give £500-£2,000 to you as a deposit contribution, and also offer 0% finance. If you don't qualify for 0% finance, you'll usually get an advertised APR offer from around 4%, though this is representative, so if you have a poorer credit history, you could be offered a much higher rate.
It's worth saying that if you know you want to own the car at the end of the deal, PCP will give you low monthly payments, but, once you include the balloon payment you need to pay at the end, PCP is often more expensive than a personal car loan or hire purchase.
Getting a PCP through an independent dealership or car supermarket
Many independent dealerships and car supermarkets get their finance from big banks' consumer arms, allowing them to be able to offer the same range of deals as the manufacturer-tied dealers. Blackhorse (part of Lloyds) and Santander Consumer Finance, for example, supply finance deals to non-franchised dealerships.
These finance providers aren't tied to manufacturers, and therefore often can't offer the heavily subsidised 0% finance or deposit contributions that the car companies' finance arms can on their PCP deals. If you go to one of these dealerships, expect a representative APR of somewhere between 5% and 10% - or more if you've a bad credit record.
It’s a competitive market out there – check what’s available online and from dealers, and ask yourself what you can really afford. It’s vital you can afford the repayments before you commit. With all these types of finance, if your application is accepted, finance is sent directly to the dealer.
Personal Contract Purchase Q&A

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