Finance glossary
Personal Contract Purchase — PCP
Also known as: PCP
In simple terms
PCP is a popular way to finance a car. You pay a deposit and lower monthly payments than hire purchase, then at the end you choose to hand the car back, pay a large final “balloon” payment to keep it, or part-exchange.
On this page
What does personal contract purchase mean?
Personal Contract Purchase (PCP) is a form of car finance where your monthly payments cover the car’s expected depreciation over the term rather than its full value. That keeps the monthly cost lower than hire purchase.
At the start, the lender estimates what the car will be worth at the end — the “guaranteed future value”. You only finance the difference between the price now and that value, plus interest.
How PCP works
You pay a deposit, then monthly payments across the term (typically two to four years). At the end you have three choices: hand the car back and walk away, pay the large “balloon” payment (the guaranteed future value) to own it, or use any equity as a deposit on a new PCP deal.
Mileage limits and a condition standard apply. Go over the agreed mileage or return the car damaged and you can face extra charges.
How could this affect me?
PCP keeps monthly payments down and gives flexibility at the end, which suits people who like to change car regularly. But you do not own the car unless you make the balloon payment, and you rarely build much equity.
If you keep taking new PCP deals, you may be paying indefinitely without ever owning a car outright. Compare the total cost against hire purchase or a personal loan if ownership matters to you.
Example
A £20,000 car on PCP over 3 years with a £2,000 deposit:
| Cash price | £20,000 |
|---|---|
| Deposit | £2,000 |
| Term | 3 years (36 months) |
| Monthly payment | £259 |
| Optional final (balloon) payment | £8,500 |
| Total if you buy the car | £19,824 |
Figures are illustrative and rounded. If you hand the car back instead, you do not pay the balloon payment (but may owe mileage or damage charges).
Things to watch out for
- You do not own the car unless you make the large balloon payment at the end.
- Exceeding the agreed mileage or returning the car damaged leads to extra charges.
- Rolling from one PCP into another can mean paying forever without ever owning a car.
- The advertised low monthly payment hides a big final payment — check the total cost of ownership.
Know your rights
- PCP is a regulated hire purchase agreement under the Consumer Credit Act 1974, with pre-contract information and usually a 14-day right to withdraw.
- Once you have paid a third of the total amount payable, the lender generally needs a court order to repossess the car.
- You have a voluntary termination right to end the agreement once you have paid half the total amount payable.
- You can complain and escalate to the Financial Ombudsman Service.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- MoneyHelper, Personal Contract Purchase (PCP) explained (opens in a new tab). Accessed 22 Aug 2026.
- FCA, CONC — motor finance and hire purchase (opens in a new tab). Accessed 22 Aug 2026.