A PCP deal makes a car feel cheap because the monthly payment is low. The catch is a big final payment, and you don't own the car until you've paid it.
- PCP means a deposit, 2 to 4 years of monthly payments, then a big final payment (the balloon) if you want to keep the car.
- Low monthly payments hide a high total cost. Always compare the total you'll pay, not the monthly figure.
- Go over the mileage limit or return the car scuffed and you'll be charged extra.
Figures for the 2026/27 tax year · last checked 2026-10-08
What PCP stands for
PCP is Personal Contract Purchase. It's a way of paying for a car in three steps:
- A deposit upfront (often 10% or so)
- Monthly payments for 2 to 4 years, which cover the car's expected loss in value plus interest, rather than the whole price
- A final payment (the balloon payment or Guaranteed Minimum Future Value) if you want to own it
Because you only pay off part of the car's value during the contract, the monthly bill looks small. The rest is pushed to the end.
Your three choices at the end
- Hand it back. Walk away with nothing owed, as long as you're within the mileage limit and the car is in decent shape.
- Pay the balloon and keep it. Now you own it.
- Part-exchange it. If the car is worth more than the balloon, the difference (positive equity) goes towards your next deal. If it's worth less, there's nothing to put towards the next one.
Dealers love the third option, because it rolls you straight into another PCP.
What it really costs
Take a £25,000 car on a PCP: £2,500 deposit, 48 payments of £329 and an £11,000 final payment.
- Deposit£2,500
- 48 monthly payments of £329£15,792
- Final payment to own it£11,000
Total you pay£29,292
Illustrative figures. That's about £4,300 more than the £25,000 cash price. If you hand the car back instead, you pay £18,292 and own nothing.
The rules that catch people out
- Mileage limit. Your contract caps miles per year, commonly 8,000 to 12,000. Go over and you pay a charge per mile, often 5p to 15p, which adds up fast. Over by 10,000 miles at 8p is £800.
- Condition. "Fair wear and tear" is allowed. Dents, curbed alloys and torn seats are charged for.
- Insurance and servicing. You still need fully comprehensive insurance, and most deals require you to keep the car serviced on schedule.
- You don't own it. You can't sell the car until the finance is cleared.
Getting a better deal
- Look at the APR (the yearly cost of the borrowing). It's the only fair way to compare finance offers.
- Negotiate the price of the car first, as you would if you were paying cash. Many people only haggle the monthly figure.
- Compare against a personal loan or hire purchase (HP). HP has higher monthly payments but no balloon, and you own the car at the end.
- Check whether a bigger deposit really lowers the payment, as some deals include dealer contributions that only apply at a fixed deposit.
Struggling to pay? Once you've paid half of the total amount payable, you have a legal right to hand the car back and end the agreement. This is called voluntary termination, and it exists to stop you being trapped.
Is PCP right for you? It suits people who want a newer car every few years and drive modest miles. If you keep cars for a decade or drive a lot, buying a reliable used car outright is usually far cheaper.