PCP Car Finance Explained

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Rates from 7.9% APR. Representative APR 19.8%

Let’s explain Personal Contract Purchase (PCP)

If you want more options with your next car purchase, then PCP could be the finance for you. At the end of your agreement, you can choose from owning the car, trading it in or simply giving it back.

If monthly budget is a concern, a PCP loan doesn’t need to cover the entire cost of your new car. The lender will assess what they think the car will lose in the time you have it, and tailor the amount of borrowing accordingly.

This means your monthly payments are typically lower than you will see on other finance options, including HP. You won’t however automatically own the car when the term ends.

If you like to change your cars regularly and don’t cover a lot of yearly miles, then PCP could be a great option for you. It’s important to remember that specific terms and conditions will apply. Fees may be applied if terms such as agreed mileage and car condition are breached.

Your monthly payments will depend on the following:

  • The deposit you’d like to pay
  • The overall cost of your car
  • The rate of interest on the term you are eligible for
  • The yearly miles you cover
  • The future value of the car as set by the lender

How does PCP work?

PCP works in 3 simple steps:

1. Your agreed deposit

By agreeing an initial deposit, you can lower your monthly payments however zero deposit options are often available.

2. The amount you wish to borrow

Unlike HP where you borrow the full cost of the car, less the deposit. The amount you borrow reflects the amount your car will lose in value during your period of ownership.

3. The final payment (balloon)

To keep the car at the end of your PCP loan agreement, you will need to pay the final payment, otherwise known as the ‘Balloon Payment’.

Why use CarFinanced for your PCP deal?

CarFinanced was built to help people drive the car they really want. Our mission is to give you the options so that you can make the best decision based on your personal circumstances.

No matter what your credit score looks like, we can help find you the best personal contract purchase deal. So whether it’s the new family car with the big boot, or a 2 seater sports car for a weekend blast, we are here to help.

What is a balloon payment?

You may have heard people refer to a ‘Balloon Payment’ on certain finance deals. This is the term used to describe the final payment at the end of your PCP term. This final payment can range from a few hundred to a few thousand pounds and is based on the Guaranteed Minimum Future Value (GMFV) of your car.

Do I meet the criteria?

CarFinanced will allow people to apply for PCP as long as they are over 18 years old and have at least 3 years UK residential history.
As with any loan agreement, some lenders will require a stronger credit score than others. Our panel of lenders will look at your individual circumstances and run a ‘soft credit check’. This will not impact your credit score.

Pro’s and Con’s of PCP

Most cars in the UK are sold on some form of credit scheme. It helps break down the cost of getting you on the road in the car you really want. PCP is a good option, but may not be right for you so we’ve broken down the pro’s and con’s for you below:


  • PCP is a great option if you want to keep the monthly payments lower than other finance options
  • If you like to change cars more regularly, PCP gives you options including giving the car back, buying the car outright or trading it in for a new one.
  • If you like to budget efficiently, then PCP offers fixed monthly payments with no surprises

  • ‘Nearly New’ cars are an option with PCP, ensuring you are buying something with almost all the benefits of a new car.


  • If you like to own your cars, then PCP may not be the right option as you do not own it throughout the duration of the loan agreement. You only own it if you pay the balloon payment at the end.
  • If you like to be spontaneous with your days out, you will be charged a fee for going over your agreed mileage
  • A deposit is often needed with PCP
  • You may not have a lot of positive equity for a new agreement if the Guaranteed Minimum Future Value (GMFV) is close to the car value

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So what about PCP vs HP?

We appreciate this can be a tough decision, so here’s a few points to help you decide;

If the priority with your new car purchase is keeping the monthly costs as low as possible, then PCP could be a better option over HP. This is due to the fact that with PCP, the loan amount is based on the amount the lender believes the car will lose during your finance period.

With HP, your loan is based on the full value of the car minus any deposit amount. HP monthly payments are typically higher because of this, however do more regularly come with zero deposit options.

Would you like to own the car?

If this is the number one priority with buying a new car, then HP would quite possibly be the better option. Yes, the monthly payments are higher however, at the end of the agreement, you will own the car following payment of the ‘Option to Purchase’ fee.

With PCP, you will be ‘hiring’ the car for the duration of your agreement, with the option of ownership only available following the completion of the balloon payment. This can often be thousands of pounds.

How many miles do you do?

This is possibly the biggest consideration when deciding between PCP and HP. If you like to drive without limitation and typically rack up the miles on long trips and family getaways, then HP could well be a better option.

With PCP agreements, you will generally find mileage limitations and sizable fees for exceeding the agreed amount. With HP, there are no such limits.

Frequently Asked Questions

At CarFinanced, we allow everyone to check whether they are eligible to be approved for finance within a few minutes. Share some small details with us and our lenders will use that information to carry out a soft credit search to give you an answer with the best deals right away.

If you have a poor credit history, you can still apply for car finance. The company will look at your personal circumstances such as; Your employment status, age, income, loan amount, alongside your credit history. You will then receive your exact interest rates and payments.
Yes! You can part-exchange your car as a deposit.

Annual percentage rate (APR) is the interest rate applied to your loan. Predominantly, it is the yearly cost of your borrowing. You will pay this on top of the sum that you have applied for. If you take out a long-term loan, the total amount payable will be more, as you will be paying interest for a longer amount of time.

Yes, if the provisional is less than 3 years old.
Our average transaction takes less than 24 hours to complete from beginning until the end.
Unfortunately, you are legally required to be 18 years or over in order to take out car finance.
If you choose HP, you will own the car at the end of your finance term, whereas if you opt for PCP, you can either choose to hand the car back or pay a balloon payment determined by the final purchase price of the car.
If you would like someone else to be able to drive your car, you may be able to add them as a named driver on your car insurance policy.
With your permission, we can pass your details on to insurance companies who can provide this for you.
Depending on the age of the car and the lender, between 12-72 months.
To be eligible for a quote, you need to be at least 18 years old, have a drivers license and earn at least £1000 per month.
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