Personal Contract Purchase Explained

In this article, we explain what Personal Contract Purchase (PCP) is and provide you with all the information you need to decide whether it’s the right option for you.

Personal Contract Purchase is perfect for:

– First time buyers
– If you want to have the option to change your car every 3-4 years

What is Personal Contract Purchase (PCP)?

A Personal Contract Purchase (PCP) is the most flexible type of car finance available.  The deal is usually 3-4 years long, needs a deposit, and tends to have lower monthly payments than other forms of finance. At the end of your contract, you can either purchase the car, hand the car back, or part exchange.

PCP Terms Explained

Term What you need to know
Duration of agreement The total duration of your agreement in months.
First Payment The first amount you pay after taking delivery of your vehicle, usually one month after the finance agreement starts.  This is then followed by your normal monthly payments.
XX Monthly Payments of The amount you pay per month of your finance agreement. These payments pay off the depreciation of the car (the difference between what the car is worth at the start of your contract, and what it will be worth at the end of your contract) rather than the total value of the car.
Optional Final Payment/
Balloon Payment/
Guaranteed Future Value (GFV)
At the beginning of your PCP contract, the value of the car is estimated – this is the expected value of the car when your contract finishes. This is what you pay if you choose to keep the vehicle at the end of your finance agreement.
On the Road Price/
Cash Price
The total amount your vehicle is worth if you were to purchase your vehicle outright.
Customer Deposit/
The total amount you put down as a deposit for your finance agreement. The deposit you put down will have an impact on your monthly payments; the higher the deposit, the lower the monthly payments will be. You will not get your deposit back at the end of the contract.
Dealer Deposit Contribution The total amount your dealer (JCT600) will put down towards your finance agreement for you.
Manufacturer Deposit Contribution The total amount the Manufacturer (i.e. Audi) will put down towards your finance agreement for you.
Amount of Credit The total amount you are borrowing on your finance agreement.
Option to Purchase Fee An additional fee which is usually paid for at the end of your finance agreement, to enable the transfer of ownership to you, from your financial provider. The value of this fee is reflected in the total amount payable and APR.
Total Amount Payable The total amount you will pay to purchase your vehicle on this finance agreement. It includes your deposit, any monthly payments, any Option to Purchase Fee and the Optional Final Payment.
Miles per Annum Your contract will have an estimated mileage per year, e.g. 6,000 miles per year (24,000 miles over a 4 year contract). The estimate is used to work out the likely future value of your vehicle at the end of your agreement. As long as you do not drive more than 24,000 miles, there will be no mileage charges at the end of your contract.
Excess Mileage Charge The amount in pence per mile that you will pay for any exceeded mileage. This is only applicable if you choose to return the car at the end of your agreement.
Fixed Rate of Interest Rate of interest on the amount of credit per annum, fixed for the duration of the agreement.
Representative APR The APR you are being charged for your finance agreement.
Equity The car’s equity is calculated using any positive difference between the GFV and the actual value of the car at the end of your contract. If your car is valued higher than the GFV at the end of the contract you can use this equity as credit to put towards your deposit on a part exchange agreement

Options available at the end of a PCP:

  • Buy the car by paying the GFV
  • Hand the car back to the dealer (this will be subject to the expected mileage and condition of the car)
  • Part exchange for a new car (using any of the car’s equity towards your next deposit)

Advantages of PCP:

  • PCP is flexible – there are options available at the end
  • The deposit amount is up to you
  • Monthly payments are usually lower than other types of finance
  • There’s no risk of depreciation

Things to consider:

  • If the car is worth more than the GFV at the end of your contract, you can put this towards your deposit on a part exchange agreement
  • If you have exceeded your contracted mileage when handing the car back, excess mileage charges will apply
  • You will have to pay the GFV to own the car

Can I settle my PCP contract early?

Yes, but you will have to pay off any difference between what your car is currently valued at and what you owe on your finance contract. For example, if your car is valued at £10,000 but your finance contract settlement is £12,000, then you will owe £2,000 to settle the difference. Please note: early repayment charges may apply.

Still not sure if PCP is right for you? Try our quick quiz:

You can view our latest finance offers here, or if you want to find out about other car finance options, check out our car finance guide.

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