Personal contract purchase (PCP)

With PCP, you'll make lower monthly payments than with hire purchase, but at the end of the term, you'll have the option to buy the car for a "balloon" payment, return it to the lender, or trade it in for a new car.

This is the most popular form of car finance used in the UK.

Example

Let's say you're interested in a brand new car that has a list price of £25,000. The dealer offers you a Personal Contract Purchase (PCP) deal over three years with the following terms:

  • You pay a deposit of £5,000 upfront.
  • You make monthly payments of £250 for the next three years.
  • At the end of the three years, you have three options:
    1. Return the car to the dealer and walk away with nothing further to pay.
    2. Trade in the car and use any equity towards a new car (if the car is worth more than the final balloon payment).
    3. Pay the final "balloon" payment of £10,000 and keep the car.

Assuming you choose to keep the car, you would have paid a total of £14,500 (£5,000 deposit plus £250/month for 36 months) over the course of the three years. You would then have the option to pay the final balloon payment of £10,000 to own the car outright, or you could trade it in and use any equity towards a new car.

Pros

  • Low deposit
  • Don't necessarily need a good credit score
  • Cheaper monthly payments than hire purchase

Cons

  • You can't modify the car until all payments have been made
  • Large balloon payment at the end of the term