PCP Car Deals

Personal Contract Purchase (PCP) is a type of car finance similar to Hire Purchase (HP), but with more flexibility. It's ideal if you want low monthly payments and the option to change your car regularly.

A staggering 80 per cent of all new and used cars sold on finance are bought in this way. It's also the preferred finance by dealers and car manufacturers.

Despite this being seen as the most complex financing option, when broken down it's fairly easy to understand.

Part 2: How are PCP payments calculated?

To calculate your monthly repayments, the dealer will ask you to specify an annual mileage allowance i.e. 5,000 miles and also the length of the contract. They’ll then estimate how much the car is likely to be worth at the end of the agreement. This amount is referred to as the Guaranteed Minimum Future Value (GMFV).

This amount is deducted from the purchase price and what's left, minus any deposit, is the amount you’ll be financing.

The higher the mileage allowance the more quickly the car will depreciate, resulting in a lower GMFV and higher monthly payments. However, be realistic about how many miles you expect to cover as anything over will cost you between 4p and 14.9p per mile over the allowance.

As you’re paying for the depreciation value of the car and not to own it, payments are likely to be lower than with Hire Purchase or a motor loan.

Why is PCP so popular

New car every two–three years – PCP gives you the flexibility to switch to a new car more often than Hire Purchase.

Flexible ownership options – You can leave the decision on whether or not you want to own the car until the end of the agreement.

Low deposit options and deposit contributions – Generally, this option requires a deposit of just 10%, and some manufacturer-led deals are available with no deposit at all. In addition, manufacturers and ourselves often offer deposit contributions of between £500 and £2,000.

Low monthly payments – You’re not financing the full cost of the car so your payments are likely to be lower than with a Hire Purchase or motor loan.

No depreciation worries – You won't initially own the car so there's no need to worry about its future value.

Frequently asked questions about PCP car finance

Does PCP require a credit check? – Yes. Before authorising you to drive away in a car worth thousands, the lender will need to be sure of who you are and that you’re likely to stick to the credit agreement.

Is the final payment for PCP finance mandatory? - No. The great thing about a Personal Contract Purchase agreement is that it's flexible. The option of ownership is available, but only if you want to own the car, do you need to pay the final payment.