The Car Expert has been the leader in providing independent, impartial car finance information and advice to UK car buyers for 12 years.
Unsurprisingly, we’ve answered a lot of questions about PCP (personal contract purchase) car finance over that time that car sales executive and car magazines can’t (or won’t) answer.
Here are some of the most common questions we’ve been asked about PCP car finance over the years.
PCP stands for Personal Contract Purchase. It is also often referred to as a Personal Contract Plan, which is not strictly correct but it doesn’t really matter all that much.
‘Personal Contract Purchase’ is correct because it is a purchase product (like a hire purchase or a mortgage), but some marketing people prefer the word ‘plan’ because it resonates better with focus groups or some such nonsense…
Car companies love branding their products to make them sound sexier. In reality, it tends to just make things more confusing for customers. Here are some of the names that are used for PCP agreements – but they are all the same thing:
Alfa Romeo Preferenza | Audi Solutions | BMW Select | Fiat I-Deal | Ford Options | Honda Aspirations | Jaguar Privilege | Jeep Horizon | Kia Access | Land Rover Freedom | Lexus Connect | Mercedes-Benz Agility | Mini Select | Renault Selections | SEAT Solutions | Škoda Solutions | Smart Agility | Suzuki Driveplan | Toyota AccessToyota | Vauxhall Flexible PCP | Volkswagen Solutions | Volvo Advantage
A PCP is actually a form of hire purchase. The main difference is that instead of paying off the whole car with your monthly payments, you are only paying off a chunk of it and deferring the rest (called the balloon or final payment) to the end of the agreement.
PCPs are popular with customers because they allow you to buy a more expensive car for a lower monthly payment than you could getwith a traditional hire purchase or a personal loan.
PCPs are popular with manufacturers and dealers because it essentially forces buyers into buying another car every few years, which greatly increases their chances of getting repeat business.
Obviously there’s no such thing as a free lunch, so saving money on your monthly payment has trade-offs elsewhere. Read about the disadvantages of a PCP here.
Although you are buying the car in your name, the finance is secured against the car – much like a mortgage on a house. That means the finance company has a financial interest in the car, and can stop you from selling it until they have been paid.
So in practical terms, the finance company owns the car – even though the paperwork is all in your name.
On a new car, PCP car finance is usually offered via the manufacturer’s own finance company. This company may be actually owned by the car manufacturer or arranged in conjunction with another bank or lender.
There are other lenders who also offer PCPs, but they are usually aimed at used car finance or sub-prime customers (people with poor credit histories) and are not normally competitive with manufacturer finance on new cars.
The dealer acts as a broker for the finance company, but does not provide finance or approve your finance application. The dealer earns commission when they sell you a finance agreement, and you have the right to ask how much commission the dealership is earning from arranging your finance.
Most finance companies offer PCP agreement terms that run anywhere from 18 months to 48 months. The most popular terms are usually 36 months (three years) or 48 months (four years).
With most types of finance, a longer terms means a lower monthly payment. With a PCP, that’s still usually the case but often it’s not as dramatic because the balloon payment decreases over time. There can also sometimes be variations depending on projected depreciation or special offers.
Obviously it’s nice to keep your monthly payments as low as possible, but this means paying more interest overall. Being locked into a longer agreement also means taking a lot longer to clear your debt, which means you will owe the finance company a lot more money if anything goes wrong during your agreement (eg – you lose your job and can’t afford to pay your car finance).
Yes you can, but the important thing you need to remember is that the finance company does not guarantee the value of the car until the conclusion of the agreement.
For example, if you need to sell your car two years into a four-year agreement, you will have to pay any difference between what your car is worth and what you still owe (this is called negative equity). So if your car is currently worth £15,000 but your finance settlement figure is £18,000, then you will have to pay the extra £3,000 to clear your negative equity.
There is usually a charge to settle a personal contract purchase early, but it is not normally large. Some finance companies also allow you to pay in additional lump sums during the term, to either reduce your monthly payments or bring the end-date forward. Some allow it with no charge, some will charge you for it and some don’t allow it at all. Make sure you check before you sign up.
Yes you can. Voluntary termination (VT) is a consumer right that’s built into any PCP or HP finance agreement. However, it is often misunderstood and the finance company won’t help you to understand it any better as it doesn’t suit them.
We have written the UK’s most comprehensive (and most copied…) guide to voluntary termination, which is definitely worth checking out.
Technically, no. But in practical terms, yes.
The balloon is the final instalment on a PCP, which is usually thousands of pounds. This is the amount you have to pay to settle the finance on the car to take clear title (ie – to clear your debt to the finance company so that you officially own the car).
The guaranteed future value (GFV) is the amount that the finance company promises they will value the car at when your PCP comes to an end. That amount is exactly the same as the balloon amount, meaning that you can give the car back to the finance company without having to pay off the balloon. So the GFV covers the balloon, but it’s a different thing and only applies at the end of the agreement.
If you breach your contract and the finance company refuses to honour the GFV, you are still left to pay off the balloon.
The balloon amount is set by the finance company based on what they expect your car to be worth at the end of your agreement. You can’t alter this amount to be higher or lower, but choosing a different specification of car, or changing the term or mileage of your agreement will affect the balloon amount.
We have a fantastic guide to understanding a PCP quote and setting up an agreement to best suit your needs, so have a read of that.
Yes you do. It’s a common misconception and many people don’t realise it, but you’re borrowing the balloon amount so you’re going to be paying interest on it.
Yes you can, but that doesn’t cancel your car purchase. It just means that you no longer want to use a PCP to pay for it, so you’ll need to find another way to pay for the car.
Yes you can. All car finance agreements have a 14-day cooling-off period where you can choose to withdraw without penalty. There are no fees or charges, but you will have to pay a few pounds in interest.
Your cooling-off period starts the day the finance agreement is activated (when the finance company pays the dealer for the car) and runs for 14 days after that. Once again, that doesn’t cancel your car purchase. The finance company will send you an invoice for the total amount borrowed, which you will have 28 days to pay.
No. A personal contract purchase agreement is for a specific car over a specific period of time. If you want to change your car for a different one, you need to settle your existing PCP and then start another one.
In practical terms, the dealership will usually make this appear completely seamless. But you are still ending one finance agreement and starting another one, which means new credit and affordability checks, and potentially different T&Cs from your current loan.
No. This is called an accommodation deal and finance companies will not allow it.
An accommoation deal is where ‘Person A’ takes out a finance agreement on behalf of ‘Person B’, usually because Person B can’t get finance on their own. Usually, a finance company will insist that the person taking out the loan is the same person who is buying the car, who is also the primary driver on the insurance policy.
Have a read of our comprehensive guide to the accommodation deal.
Yes it does, regardless of what a salesman may tell you, assuming that you don’t plan to pay off the final balloon payment and keep the car at the end of the agreement. Your mileage is a key factor in determining the balloon and GFV on your PCP agreement. The higher your mileage, the higher your monthly payment will be and the lower the balloon will be.
If you go over your agreed mileage, you can expect a hefty penalty charge if you want to hand the car back at the end of the agreement.
However, if you pay out the balloon and keep the car, the mileage doesn’t matter.
A deposit contribution is more or less a discount in return for taking a finance offer on a car. So instead of taking £2,000 off the price of the car, a dealer/manufacturer/finance company is giving you £2,000 towards the price of the car. From the customer’s point of view, it’s basically the same thing (and for your voluntary termination rights, it’s probably better. But that’s a longer story.)
Whether one type of finance is ‘better’ than another depends on your financial circumstances, how much certainty you have in your circumstances for the next 3-4 years and how flexible you want your contract to be. Consider all the pros and cons of each so that you’re making an informed decision.
Probably not if you’ve only missed one or two payments. However, if you’ve repaid less than a third of the total amount owed, the finance company can repossess the car if you keep defaulting. If you’ve repaid mode than a third of your debt, they need to get a court order to repossess your car.
This very much depends on your own situation. Would you rather put in more cash now and pay less per month, or keep some money in your pocket now but have to pay extra every month for the next three to four years?
There’s no right or wrong, it depends on what works best for you. The dealer will almost certainly want you to put less cash in and borrow more, because it’s better for them (they get paid more commission). But that’s not your problem.
We’ll keep updating this list over time as we get more questions that haven’t already been covered. Last updated March 2023.
