What is Personal Contract Purchase (PCP)?

We explain how a personal contract purchase (PCP) works to help you decide if it's right for you when choosing your next car...

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Personal Contract Purchase, which is commonly referred to as PCP, might be a great option if you like to drive a new car every few years.

In essence, PCP is like a loan to help you purchase your car, however unlike a personal loan you won't be paying off the full value of the vehicle unless you decide to keep it.

With the option of low monthly payments to fit your budget, PCP is a long-term finance option which is personalised to suit you. You have the option to own the car at the end of your agreed term by paying the Balloon Payment, which is also known as the minimum guaranteed future value (MGFV), and the option-to-purchase fee, both of which are agreed at the beginning of your contract. A PCP contract is similar to a contract hire agreement in that it is based on a fixed term and agreed mileage limit.

Here are some positives for PCP and some things you should remember:


  • For a lower monthly repayment than your average personal loans, you get the opportunity to drive a new car.
  • PCP options are highly flexible, with several options at the end of your agreed term.
  • If purchasing the car is not the right option for you, you can simply hand back the car.
  • No need to worry about the future trade-in or resale value of the car, because the lender will guarantee your car will be worth a minimum sum at the end of the deal.
  • You have the option to buy the car that you thought you may not have been able to afford.
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  • You only own the car at the end of the agreement once you have paid the balloon payment and option-to-purchase fee. Just like other finance options you don't own the car during your agreement.
  • There is an agreed annual mileage allowance, which will be set at the beginning of your term. Make sure you estimate your mileage accurately, because there is a charge if you go over the agreed limit.
  • Fully comprehensive vehicle insurance is a stipulation of the contract.
  • You must keep your vehicle to an agreed standard during your agreed term. Fail to do so and you'll be charged for any damage (not including fair wear and tear).

So, is a personal contract purchase the right option for you? PCP is a fantastic way drive a new car every few years, it also gives you the opportunity of owning a car you may have not been able to afford outright. With often low monthly payments, PCP could be a great option for families or working professionals.

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