PCP Car Finance Explained: Is It Right For Me?

pcp car finance explained

Are you thinking of financing your next new or used car?

There are so many methods of financing your next car, but what method is right for you?

PCP or Personal Contract Purchase might be best suited to you if you’re looking for the newest car at an affordable price.

If you’re looking at changing your car regularly then PCP car finance could be the option for you.

In this blog post, I’m going to help you decide whether it’s the right method to finance your next car.

What Is PCP Car Finance?

PCP finance, or Personal Contract Purchase is a way of paying for your car in monthly installments.

You pay an initial deposit typically around 10% which will take the overall cost of the finance down a bit.

You then follow up with regular monthly repayments, typically lasting between 24 and 48 months.you pay interest on the monthly repayments, but this is included.

And then at the end of the finance term you either:

  • Pay the balloon payment (also known as an optional final payment) – this is the amount of money that the car is expected to be worth after the monthly repayments.
  • You give the car back and walk away without paying anything else.
  • Trade the car in for a new car and continue paying monthly payments.

Who’s PCP Finance Suited For?

get behind the wheel of a new car

PCP finance is a great option if you plan to change your car regularly or want a newer car every few years.

It’s a little bit like a car loan, except you’re always always paying for the car, month after month.

This is fine if you can budget well or don’t want to spend a lot on car maintenance as newer cars often don’t need as expensive maintenance bills.

How Does PCP Car Finance Work?

If you’re wondering how PCP car finance works, then you’ve come to the right place!

It might sound a little complicated, but stick with me on this one and I’ll give you a practical example of how it works.

Let’s say you’ve just signed up to a PCP finance offer for three years, the car costs £15,000 and it’s calculated to have an estimated worth of at least £5,000 after the three years…

  • You pay your initial 10% deposit upfront, you then have paid £1,500 of the cost of the car, so there’s £13,500 left to pay.
  • Of that £13,500, the car is estimated to be worth £5,000 after three years, so the amount you pay over three years is £8,500 including interest.
  • At the end of the finance term, you either: pay the remainder £5,000, you give the car back, or trade the car in for a new one.

Of course, this is only an example, real world examples will likely be much different, but the concept still applies.

Over the three year term, you’d be paying roughly £226 a month!

And this example is likely to be very similar to that of a real world example.

We’re not all made of money and need to be smarter with how we spend our hard earned cash.

What Charges Could I Face When Handing The Car Back?

When you come to the end of the finance agreement and you decide to hand the car back, there could be some additional charges.

These charges would’ve been outlined in the terms & conditions at the very beginning!

But who really reads all of the terms right?

They’re usually many pages in length, and most of the charges are common sense, let’s so through the possible charges now:

  1. Mileage charges – when you take out a PCP finance agreement, you’ll be given a number of miles that you need to stick to per year, if you exceed this, you’ll pay 7p – 10p per mile over the agreed mileage.
  1. Damage – if the car has any damage (not including wear and tear) such as dinks or scratches, you’ll be asked to pay for these.

Car finance companies accept that wear and tear is part of everyday driving, but not large dinks, dents or scratches.

In terms of mileage, you’ll agree upon a set mileage, usually between 12,000 and 15,000 miles (annually), and exceeding this will incur additional charges.

Is PCP Car Finance Right For Me?

is pcp car finance right for you?

Any form of car finance will depend on the individual person’s circumstances.

If you’re going to keep your car any longer than three or so years, then HP (Hire Purchase) or a Car Loan might be the best option for you.

You need to deep dive into your finances, your outgoings and income to better judge the situation.

HP finance will cost more per month, but there’s no optional final payment and a car loan could last several years.

Only 20% of people with a PCP finance deal actually buy the car.

If you’re potentially one of the 80% that won’t buy the car at the end of the finance agreement, then car leasing might be the option for you.

Leasing a car is where you pay an initial deposit, and then monthly repayments typically lasting between 12 months and 36 months.

Pros And Cons Of PCP Finance

Let’s take a look at the pros and cons of PCP car finance to find out whether it’s right for you


  • You get to drive a new car at low monthly payments.
  • Flexible options at the end of the finance agreement.
  • PCP car finance deals are usually offered to new or nearly new cars.
  • A PCP deal lets you drive a more expensive car at lower monthly payments that you might not have been able to before.


  • You’ll be charged extra if you go over the agreed annual mileage, typically between 7p and 10p.
  • You won’t own the car during the agreed term – even at the end you’ll have to pay the balloon payment to own the car.
  • Just remember, the future value of the car is based on the condition of the car, you might have to pay for any extra damage.

Now that we’ve covered the main parts about PCP car finance, the pros and the cons, you’re probably wondering…

So where can I get PCP finance?

There are two main methods of getting PCP finance, that’ll be from a dealer or from an online broker.

It’s up to you which one you go for, but we’ll look at each of them in some more detail now.

Getting Finance From The Dealer

Finance from the dealer is often referred to as forecourt finance – and nearly every dealer in the country will offer this.

Getting PCP car finance from the dealer is usually going to be more tempting than through an online broker as you’ll be there in person at the car you wish to finance.

Be careful though…

Some dealers will offer car finance and tempt you into what seems like a great deal when actually, it’s not.

My advice to you here, is to shop around, even going to another dealer under the same brand such as BMW can get you a better deal.

Getting Finance From An Online Broker

Getting PCP car finance from an online broker is another popular way of financing your next car.

It’ll involve logging onto an online car finance broker website such Zuto, filling out an application form and getting a quote.

By quote I mean they’ll match your details to various lenders to find out what’s the best price for you.


When using an online broker, check if they’ll do a hard search or a soft search.

A hard search will reduce your credit score, whereas a soft search won’t – it’ll still show up though.

It’s always worth checking the small print on the application form or in the broker’s terms and conditions.

Another online broker for PCP car finance is carfinance247, their website looks great and their application process is really straightforward.

Can I Settle My PCP Car Finance Agreement Early?

A common question asked is whether you’ll be able to settle your car finance ealy.

The simple answer to this is…

Usually, yes.

And the reason I say this, is because to exit the finance deal a year or two early you will need to pay the difference between what the car is worth and what you still owe.

Chances are your car will be worth more a year or so into the three year finance agreement than towards the end.

The best thing to do here, is to check with your finance provider, whether that’s the dealer, or through a finance broker.

Will PCP Car Finance Affect My Credit Score?

Typically speaking, you won’t be affected by your credit score when you apply for PCP Car Finance.

So long as an initial soft check is run.

This soft check will determine whether you’re able to afford the monthly repayments based on your credit history and other financial indicators.


If you go through with the quote, you will get a hard check performed which will end up likely affecting your credit score.

That being said, it’s of course always worthwhile checking with whoever you’re getting your PCP car finance with.