PCP Car Finance
Personal Contract Purchase (PCP), spreads the cost across a deposit and fixed monthly payments, with an optional final payment at the end if you want to keep the car. We search a panel of lenders for options that may suit your circumstances.
Lower monthly payments, an agreed mileage.
At the end, keep the car, hand it back or part exchange.
Soft search · No impact on your credit score
What is PCP car finance?
PCP, or Personal Contract Purchase, is a car finance agreement where you pay a deposit, then fixed monthly payments over an agreed term. Those payments cover the car's expected drop in value rather than its full price. At the end you can pay an optional final payment to own the car, hand it back, or part exchange it.
PCP is a form of hire purchase with a large part of the cost deferred to the end, which is why monthly payments are lower than they would be on Hire Purchase for the same car. Every agreement sets an annual mileage allowance, and the car only becomes yours if you choose to make that final payment. See the finance glossary
Lower monthly payments
Because your payments cover the car's expected drop in value rather than its full price, they are usually lower than Hire Purchase on the same car.
An agreed mileage
You agree an annual mileage at the start, which helps set the car's expected value at the end. Going over it can cost you if you hand the car back.
A choice at the end
When the term finishes you decide: pay the optional final payment and keep the car, hand it back, or part exchange it towards your next one.
How PCP works, step by step.
Three stages, all agreed before you sign. You set the deposit, the annual mileage and how long the agreement runs, then make fixed monthly payments across that term. What happens at the end is your decision, and the optional final payment is what decides whether the car becomes yours.
Agree the deposit, mileage and term
You agree the deposit, how many miles a year you expect to drive and how long the agreement runs. Those three choices together set your monthly payment and the car's estimated value at the end.
Make fixed monthly payments
The finance company settles the balance with the dealer, and the agreement is secured against the car. Your payments cover the car's expected drop in value plus interest, expressed as an APR, so the monthly amount is fixed.
Choose what happens at the end
Pay the optional final payment and the car is yours, hand it back with nothing more to pay, or part exchange it towards your next one. Mileage and condition are checked if you hand it back.
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How your PCP payments are worked out
On PCP your monthly payments do not cover the whole car. The lender takes the cash price, subtracts your deposit, then subtracts what it expects the car to be worth at the end. You pay off what is left in between, plus interest. That is the whole reason PCP payments are lower than Hire Purchase on the same car.
What your payments actually cover
You are financing the part of the car you use up, not the car. Take the cash price, take off your deposit, then take off the value the lender expects the car to still have at the end. What is left is what your monthly payments clear, with interest on top.
What the Guaranteed Minimum Future Value is
The GMFV is the lender's estimate, set at the very start, of what your car will be worth when the agreement ends. It is based on the term and the annual mileage you agree, which is why changing either one changes your monthly payment. Some lenders call it the GFV. It is the same thing, and it is the amount your optional final payment will be.
Who carries the risk if the car is worth less
The lender does. The value is guaranteed at the start, so if the car turns out to be worth less than the GMFV when the agreement ends, you can hand it back and walk away from the difference. That shortfall is the lender's problem, not yours, provided you have stayed within the agreed mileage and the car is in fair condition.
Illustrative example
Where a £20,000 car splits
- Cash price of the car
- £20,000
- Less your deposit
- £2,000
- Less the optional final paymentThe GMFV, set at the start
- £8,000
- What your monthly payments clearPlus interest, across the agreed term
- £10,000
Figures are rounded and shown to make the split visible. They are not a quote and they carry no rate. Your own agreement sets the real ones.
Who owns the car on PCP?
During a PCP agreement the finance company is the legal owner of the car. You are the registered keeper, which means the V5C is in your name, but ownership only passes to you if you choose to pay the optional final payment and the option to purchase fee at the end of the agreement.
This is the part that differs from Hire Purchase. On Hire Purchase ownership transfers automatically once the last instalment is made. On PCP it never transfers on its own, because the final payment is optional. Until it is paid, the car remains the lender's, so you will usually need fully comprehensive insurance and the lender's permission before you sell or modify it. Your agreement sets out the exact terms.
Ownership at a glance
Estimate your PCP payments
Move the sliders to see an illustrative monthly payment on PCP. It is an estimate, not a quote. Your real figures depend on the car, your circumstances and a soft eligibility check. For the full tool, use our finance calculator.
- Example APR
- 9.9%
- Amount borrowed
- £12,000
- Optional final payment
- £3,600
- Option to purchase fee
- If you keep the car
- Total cost of credit
- £3,232
- Total amount payable
- £15,232
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The optional final payment.
Also called the balloon payment. It is the one figure on a PCP agreement that people most often misunderstand, so here it is in full.
The optional final payment, often called the balloon payment, is the amount you pay at the end of a PCP agreement if you want to keep the car. It is optional, and it is set at the start as the Guaranteed Minimum Future Value, or GMFV, which is what the lender expects the car to be worth by then.
Your monthly payments are calculated around that figure, which is why it is fixed when the agreement starts and is not recalculated at the end.
Three things people ask about it
The distinction in the first one is the one that catches people out.
The final payment and the option to purchase fee are not the same thing
The optional final payment is the large amount, the GMFV, that buys the car outright. The option to purchase fee is a separate administrative charge for transferring ownership, and it is much smaller. Keep the car and you pay both. Hand it back and you pay neither. Your agreement states each amount.
What happens if you do not want to pay it
You do not have to. Provided you have kept to the agreement, you can hand the car back at the end of the term and owe nothing further, or part exchange it and put anything it is worth above the final payment towards the next car. Both routes are subject to the mileage and condition terms you agreed at the start, and both are set out in what happens at the end.
Whether the final payment can be refinanced
It often can. Rather than paying it in one go, a final payment can commonly be refinanced into a new agreement and spread over a further term, which lowers what you pay each month and raises what the car costs in total, because you pay interest for longer. Whether it is available depends on the lender, the car and your circumstances at the time.
The final payment does not move. If the car turns out to be worth more than the GMFV at the end, that difference is yours to use as a deposit. If it is worth less, handing the car back is what protects you from the shortfall, provided you have stayed inside the mileage and condition terms.
The exact amounts and terms are the ones written in your own credit agreement.
What happens at the end of PCP?
At the end of a PCP agreement you have three choices. Hand the car back and walk away. Pay the optional final payment and the option to purchase fee, and keep it. Or part exchange it and put anything it is worth above the final payment towards your next car.
All three assume you have kept to the agreement, including the annual mileage and the car's condition. Hire Purchase has no equivalent decision: there, ownership simply transfers once the last instalment is made.
Hand the car back
You return the car at the end of the term and owe nothing further, provided you have stayed inside the agreed mileage and the car is in fair condition.
Pay and keep the car
You pay the optional final payment plus the option to purchase fee, and the car becomes yours. It can be paid outright or, in many cases, refinanced.
Part exchange it
You trade the car in. If it is worth more than the final payment, that difference is equity and it can go towards the deposit on your next agreement.
What equity means here
Equity is the amount the car is worth above the optional final payment at the end of the term. It is real money, but it is not cash. You generally cannot hand the car back and take the difference, and where you can spend it is often limited to the same dealer or lender group. Worth asking about before you count on it.
What happens if the car is worth less
At normal end-of-term handback that shortfall is the lender's risk, not yours. The final payment was guaranteed when the agreement started, so a car that has fallen further than expected is their problem, provided you have kept to the mileage and condition terms. It becomes your problem only if you settle early or part exchange mid-term.
Mileage and vehicle condition
These are the two charges people worry about most on PCP, and the two that are hardest to find a straight number for. Here is what each one is, when it applies, and roughly what it costs.
Excess mileage is only charged if you hand the car back. If you pay the optional final payment and keep the car, the miles you have done do not change what you owe. The charge exists because the car's value at the end was calculated on the mileage you agreed.
Agreed mileage and what going over costs
Every PCP agreement sets an annual mileage allowance, because the optional final payment is calculated from what the car is expected to be worth at the end, and how far it has been driven is most of that. Go over the allowance and you pay a set rate for each extra mile. That rate is a pence-per-mile figure written into your agreement when you sign. It is not set at handback and it is not negotiable then.
| Rate in your agreement | 1,000 miles over | 3,000 miles over | 5,000 miles over |
|---|---|---|---|
| 6p a mile | £60 | £180 | £300 |
| 10p a mile | £100 | £300 | £500 |
| 15p a mile | £150 | £450 | £750 |
| 20p a mile | £200 | £600 | £1,000 |
| 25p a mile | £250 | £750 | £1,250 |
The money in this table is the rate multiplied by the extra miles, nothing more. Rates across the UK market typically run from about 5p to 30p a mile depending on the car. Those are general market figures, not CarFinanced terms: your own agreement sets the rate.
What counts as fair wear and tear
Fair wear and tear is the damage a car picks up from normal use over the term. It is expected and it is not charged for. Damage beyond it is, and the line between the two is drawn by a published industry standard rather than by whoever happens to inspect the car. See the finance glossary for the terms used here.
| What is inspected | Usually acceptable | Usually chargeable |
|---|---|---|
| Scratches | Up to about 25mm, with the primer and bare metal not showing | Longer than that, or anywhere the primer or bare metal shows |
| Dents | Under about 15mm across with the paint unbroken, up to two on a panel | Larger, paint broken, or more than two on the same panel |
| Stone chips | Small chips, around 3mm, that have not started to rust | Rusted chips, or a cluster of them on one panel |
| Alloy wheels | Scuffing along a short run of the rim, roughly 50mm | Kerb damage beyond that, and any cracked or buckled wheel |
| Tyres | At or above the legal 1.6mm across the central three quarters | Below the legal limit, or damage to the sidewall |
| Glass | Light scratching outside the driver's line of sight | Any chip or crack in the driver's line of sight |
| Interior | Light creasing, fading and normal wear to the seats and trim | Burns, tears, holes and staining |
| Keys and paperwork | Every key, the handbook and the service record returned with the car | Anything missing, however good the car looks |
These tolerances are indicative and are drawn from published summaries of the BVRLA Fair Wear and Tear Standard, checked on 18 September 2026. The BVRLA issues the standard itself through finance and leasing companies rather than publishing it in full, so treat the figures above as a guide to the shape of it. Most handback inspections are assessed against that standard or one very like it, and your agreement names the one that applies to you.
Is PCP right for you?
There is no single best type of car finance. It comes down to how far you drive, whether you want to own the car at the end, and how much the size of the monthly payment matters to you.
General information, not advice or a recommendation. It does not affect what you may be eligible for. Nothing is submitted or stored.
PCP may suit you if
Hire Purchase may suit you better if
PCP advantages and considerations.
Monthly cost
Lower than Hire Purchase on the same car, because you fund the drop in value rather than the full price.
The car is not yours unless you pay the optional final payment. On Hire Purchase, ownership comes automatically.
Flexibility
A real choice at the end: keep the car, hand it back, or part exchange it.
That choice is only free if you have stayed inside the agreed mileage and the car is in fair condition.
Mileage
You set the annual allowance at the start, matched to how far you actually drive.
Going over it costs a set rate for every extra mile, fixed when you sign. See what that costs.
Total cost
A lower monthly commitment, with no obligation to end up owning a car you may not want.
Rolling one agreement into the next restarts the interest on a newer car each time. Over a long enough period, buying once and keeping it is usually cheaper.
PCP and Hire Purchase at a glance
Hire Purchase is the option most people weigh PCP against. Conditional sale works in a very similar way to Hire Purchase, while a personal loan or leasing puts you in a different position again.
| Flexible route PCP Personal Contract Purchase | Ownership route HP Hire Purchase | |
|---|---|---|
| Ownership at the end | Only if you pay the optional final payment | Yours after the final payment and the option to purchase fee |
| Monthly payments | Lower. You finance the expected depreciation | Higher. You finance the full value of the car |
| Deposit | Often required | Optional on many agreements |
| Final payment | Large optional final payment | Option to purchase fee only |
| Mileage limits | Agreed limit, with charges if you exceed it | None |
| At the end you can | Keep it, return it or part exchange it | Keep the car. It is yours |
Ending a PCP agreement early.
You are not locked in for the full term, but the four ways out cost different amounts and one of them works very differently on PCP than most pages suggest. Here is each one, and what it actually leaves you paying.
If you are struggling with payments, speak to your finance provider as early as you can. Acting early usually leaves more options open.
Settle it early
You pay off what is left and the agreement closes. Ask your finance company for a settlement figure in writing, not the broker, because only they can give you one and it can differ from the balance you were expecting. On a PCP it will usually include the optional final payment.
- What you pay
- A settlement figure quoted by your finance company
- The car
- Yours once that figure is paid in full
Voluntary termination
A statutory right under the Consumer Credit Act 1974: once you have paid half the total amount payable you can hand the car back and owe nothing more towards it. Not yet at half? You can still terminate, but you have to make up the difference.
The part most pages get wrong: on a PCP the total amount payable includes the optional final payment, so the halfway point usually arrives close to the end of the term. Voluntary termination is far less useful on PCP than it is on Hire Purchase.
- What you pay
- Up to half the total amount payable, plus arrears and damage beyond fair wear and tear
- The car
- Handed back to the finance company
Part exchange it early
A dealer settles the agreement and puts the car towards your next one. It works, but mid-term the car is usually worth less than the outstanding balance, and that gap is yours. It either comes out of your pocket or gets added to the next agreement, where you pay interest on it again.
- What you pay
- Any shortfall between the car's value and the settlement figure
- The car
- Goes to the dealer, who settles the finance
Sell it yourself
Not until the finance is settled. The finance company is the legal owner for the whole of a PCP agreement, so the car is not yours to sell. Settle it first, using a settlement figure from them, and then it is.
- What you pay
- The settlement figure, before any sale can go ahead
- The car
- Only yours to sell once the finance is cleared
Voluntary termination is a statutory right under sections 99 and 100 of the Consumer Credit Act 1974. Whether a lender can charge for excess mileage on a voluntary termination is contested: MoneyHelper publishes free impartial guidance on ending a car finance agreement early and its position is that no charge applies where you have taken reasonable care of the car, while some lenders do apply one. If you disagree with a charge, raise it with your finance company first and then, if it is not resolved, with the Financial Ombudsman Service. You can also contact us or read our complaints policy.
PCP, credit history and eligibility.
The two questions people ask last and worry about first: whether your credit history rules you out, and what you actually need to get a quote.
A lender weighs up your credit history, what you can afford now, how steady your income is, and the car itself, because a PCP agreement is secured against it.
Your credit history is one part of that picture rather than the whole of it, which is why two people with similar scores can get different answers. If yours is the part you are worried about, start with car finance with bad credit .
What you need to get a quote
Three things, before anything else is looked at.
Your age
You need to be 18 or over to take out a regulated credit agreement.
Requirement 18 or overYour licence
You need a UK driving licence.
Requirement UK driving licenceYour income
You need to be earning at least £1,000 a month.
Requirement £1,000 a monthChecking
The initial eligibility check is a soft search, so it leaves no mark a lender can see and does not affect your credit score. See how it works.
Credit impact None at this stageMeeting all three means you can get a quote. It is not a decision. What a lender offers, and whether they offer at all, depends on the full picture once they have seen it. You can check your eligibility whenever you are ready.
All finance is subject to status, affordability and the lender's assessment.
Why drivers use CarFinanced for PCP.
FCA regulated
CarFinanced Ltd is authorised and regulated by the Financial Conduct Authority under firm reference number 1014460. Our authorisation can be checked on the public FCA register, and our complaints policy sets out how to raise a concern.
A broker, not a lender
We do not lend. We search our panel of lenders and offer you the best deal you are eligible for. The lender pays us a commission, a fixed fee or a fixed percentage of the amount borrowed, which does not influence your rate. Our Initial Disclosure Statement sets it out in full.
A soft eligibility check
The initial eligibility check is a soft search, so it leaves no impact on your credit score at that stage. You can see what may be available to you before taking anything further.
All credit scores considered
Applications are considered across all credit scores. Every application is subject to status and income and applicants must be 18 or over, so applying is never a guarantee of finance.
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No. Excess mileage is only charged if you hand the car back at the end. If you pay the optional final payment and keep the car, the miles you have done do not change what you owe. The charge exists to cover a lower resale value, and once you own the car that is your concern rather than the lender's.
What going over your mileage costs →No. It is optional, which is what the name means. Pay it, plus the option to purchase fee, and the car becomes yours. Do not pay it and you hand the car back or part exchange it instead, and owe nothing further provided you have kept to the mileage and condition terms.
The optional final payment explained →Not until the finance is settled. The finance company is the legal owner for the whole of the agreement, so the car is not yours to sell. Ask them for a settlement figure, pay it, and ownership passes to you. After that you can sell it like any other car.
Yes, usually by part exchanging it, and a dealer settles the finance as part of the deal. The catch is mid-term value: the car is often worth less than the outstanding balance, and that shortfall is yours. It comes out of your pocket or rolls into the next agreement.
Ending a PCP agreement early →No. The initial eligibility check is a soft search, so it leaves no impact on your credit score at that stage. You can see what may be available to you before taking anything further. A full application later involves a different kind of check, which your lender will explain.
Possibly. All credit scores are considered, and because the finance is secured against the car some lenders look at a wider range of circumstances than they would for unsecured borrowing. Every application is subject to status and income, so it is never a guarantee.
Bad credit car finance →Yes. PCP is widely available on used cars as well as new ones. Lenders usually set limits on the age and mileage of the car at the end of the agreement rather than at the start, because that is what the final payment is calculated from. Your agreement will state them.
Yes. Section 66A of the Consumer Credit Act 1974 gives you 14 days to withdraw from a regulated credit agreement, counted from the day after the last of the agreement being made and you receiving your copy. You then repay the credit and the interest accrued on it within 30 days.
No. Leasing, or personal contract hire, is renting: you hand the car back at the end and there is no option to buy it. PCP is a form of hire purchase, so it carries an optional final payment that lets you own the car if you want to.
PCP and HP at a glance →Not your payments. The scheme compensates for undisclosed commission on agreements taken out between 6 April 2007 and 1 November 2024, and it does not change the terms of any live agreement. Lenders contact the people who may be owed money, so you do not need to use a claims firm.
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