What is PCP? Understanding Personal Contract Purchase

Check Your Eligibility in 60 Seconds

Personal Contract Purchase (PCP) is one of the most popular car finance options available in the UK. It offers flexibility and affordability, making it an attractive choice for many car buyers. In this post, we’ll explore what PCP is, how it works, its benefits and drawbacks, and how it compares to other finance options.

What is PCP?

Personal Contract Purchase (PCP) is a type of car finance that allows you to pay for a car over a period of time through monthly instalments. At the end of the contract, you have the option to either buy the car outright, return it, or trade it in for a new vehicle.

How Does PCP Work?

  1. Deposit: You start by paying an initial deposit, usually 10-20% of the car’s value.
  2. Monthly Payments: You make fixed monthly payments over the term of the agreement (typically 24 to 48 months). These payments cover the depreciation of the car’s value, not the full value of the car.
  3. Final Balloon Payment: At the end of the term, you have three options:
  • Pay the final balloon payment (Guaranteed Minimum Future Value) to own the car.
  • Return the car with no additional costs if it’s within the agreed mileage and condition.
  • Trade in the car and start a new PCP agreement.

For more details on refinancing options, visit our page on how to refinance your car in the UK.

Benefits of PCP

  • Lower Monthly Payments: Since you’re only covering the car’s depreciation, monthly payments are generally lower than other finance options.
  • Flexibility: At the end of the term, you can choose the best option based on your circumstances.
  • Newer Cars: PCP agreements typically allow you to drive a newer, more reliable car than you might afford outright.

Drawbacks of PCP

  • Mileage Limits: Exceeding the agreed mileage can result in additional charges.
  • Final Payment: If you want to own the car at the end, the final balloon payment can be substantial.
  • Condition Requirements: The car must be kept in good condition to avoid extra charges when returning it.

For those with bad credit, check out our bad credit car finance options to see how you can still benefit from PCP.

PCP vs. Other Finance Options

OwnershipOptional at end of termAutomatic at end of termNo ownership
Monthly PaymentsLowerHigherLower
Initial DepositUsually RequiredUsually RequiredUsually Required
Mileage RestrictionsYesNoYes
Final PaymentBalloon payment optionNo balloon paymentNo balloon payment

PCP Eligibility Criteria

To qualify for a PCP agreement, you typically need:

  • A good credit score.
  • Proof of income.
  • A stable employment history.
  • A UK address history.


  1. Can I pay off my PCP early?
    Yes, but there may be early termination fees. Check your contract for details.
  2. What happens if I exceed my mileage limit?
    You will incur additional charges based on the excess mileage rate specified in your contract.
  3. Is insurance included in PCP?
    No, you will need to arrange your own car insurance.
  4. Can I modify the car during the PCP term?
    Modifications are generally not allowed as the finance company owns the car until you make the final payment.

For more information on the differences between PCP and other options, visit our Car Finance vs. Personal Loan page.


Personal Contract Purchase (PCP) offers a flexible and affordable way to finance a car, with lower monthly payments and multiple end-of-term options. However, it’s essential to understand the terms and conditions, including mileage limits and the final balloon payment. By weighing the pros and cons, you can determine if PCP is the right choice for you.

For more information on car finance options, visit Happy Motor Finance.

Check Your Eligibility in 60 Seconds

used car pcp

PCP for Used Cars: How it Works

Personal Contract Purchase (PCP) is a flexible and affordable way to finance both new and used cars. Here we’ll explore how PCP works specifically for used vehicles, including the benefits,…
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Company Name & Contact Details
Happy Motor Finance
Clippers House
Clippers Quay
M50 3XP
0161 524 0582
Happy Motor Finance Limited is registered in England and Wales under company number: 14387669. Registered office address: Clippers House, Clippers Quay, Salford, England, M50 3XP

Happy Motor Finance Limited (FRN - 989250) is authorised and regulated by the Financial Conduct Authority. We act as a credit broker not a lender. We work with a number of carefully selected credit providers who may be able to offer you finance for your purchase. (Written Quotation available upon request). Whichever lender we introduce you to, we will typically receive commission from them (either a fixed fee or a fixed percentage of the amount you borrow) this will not affect the rate you are offered or the amount you will pay back. The lenders we work with could pay commission at different rates. All finance is subject to status and income. Terms and conditions apply. Applicants must be 18 years or over. We are only able to offer finance products from these providers.

Happy Motor Finance Limited are registered with the Information Commissioners Office under registration number: ZB408604

VAT Number: 456 0212 21
Specialist Automotive Finance Approved
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