TrustScore 4.4 | 13,091 reviews
TrustScore 4.4 | 13,091 reviews
TrustScore 4.4 | 13,091 reviews
TrustScore 4.4 | 13,091 reviews
TrustScore 4.4 | 13,091 reviews
TrustScore 4.4 | 13,091 reviews
TrustScore 4.4 | 13,091 reviews
Personal Contract Purchase (PCP) is a type of car finance that allows you to spread the cost of buying a vehicle over smaller monthly instalments. We don’t offer PCP at Moneybarn, but it’s handy to know how PCP works so you can decide which type of finance is right for you.
Personal Contract Purchase (PCP) is a type of car finance that allows you to spread the cost of buying a vehicle over smaller monthly instalments. We don’t offer PCP at Moneybarn, but it’s handy to know how PCP works so you can decide which type of finance is right for you.
It differs from other finance deals, such as Conditional Sale (CS), Hire Purchase (HP), and personal loans in several ways, the main one being the requirement to make a final balloon payment at the end of the contract if you wish to buy the car outright.
Understanding the similarities and differences between PCP finance and alternative finance types will help you choose the most suitable deal for you when purchasing your next car.
Here, we explain what PCP finance is, how it works, and what other types of car finance are available should you decide it’s not right for you.
Personal Contract Purchase (PCP) finance is a type of loan available to make it easier for you to get access to cars that may otherwise be unaffordable.
Under PCP deals, the monthly repayments you make don’t actually cover the full value of the car, just its predicted depreciation over the term of the agreement.
A PCP car finance agreement can be broken down into three main stages: the deposit, the monthly repayments, and the balloon payment. To put these stages into context, let’s imagine you’re trying to finance a car with a current market value of £12,000.
It differs from other finance deals, such as Conditional Sale (CS), Hire Purchase (HP), and personal loans in several ways, the main one being the requirement to make a final balloon payment at the end of the contract if you wish to buy the car outright.
Understanding the similarities and differences between PCP finance and alternative finance types will help you choose the most suitable deal for you when purchasing your next car.
Here, we explain what PCP finance is, how it works, and what other types of car finance are available should you decide it’s not right for you.
Personal Contract Purchase (PCP) finance is a type of loan available to make it easier for you to get access to cars that may otherwise be unaffordable.
Under PCP deals, the monthly repayments you make don’t actually cover the full value of the car, just its predicted depreciation over the term of the agreement.
A PCP car finance agreement can be broken down into three main stages: the deposit, the monthly repayments, and the balloon payment. To put these stages into context, let’s imagine you’re trying to finance a car with a current market value of £12,000.
For a PCP agreement, this is typically 10% of the car’s price, according to MoneyHelper. So, if the car you want to finance is worth £12,000, you’ll likely pay a £1,200 deposit.
With a PCP loan, your monthly payments cover the predicted depreciation of the car you’re financing over the duration of your contract. If your £12,000 car will have a market value of £5,000 after a 3-year PCP term, you will have £7,000 of finance (plus interest) to pay over 36 monthly instalments.
For a PCP agreement, this is typically 10% of the car’s price, according to MoneyHelper. So, if the car you want to finance is worth £12,000, you’ll likely pay a £1,200 deposit.
With a PCP loan, your monthly payments cover the predicted depreciation of the car you’re financing over the duration of your contract. If your £12,000 car will have a market value of £5,000 after a 3-year PCP term, you will have £7,000 of finance (plus interest) to pay over 36 monthly instalments.
This will be set at the start of PCP finance agreements based on how much car dealerships think the vehicle will be worth at the end of the repayment term (in other words, how much they predict it will depreciate by following ‘fair wear and tear’). This value is often referred to as the Guaranteed Minimum Future Value (GMFV).
You will make the balloon payment if you decide to keep the car at the end of the contract. For the car purchase example used here, the balloon payment will be £5,000.
You can either choose to pay it and keep the car, trade your car in and start a new PCP deal, or give the car back and there won’t be anything to pay, providing the car is without damage or excessive wear and tear.
If you choose to spread your vehicle finance over a longer period, the amount you pay each month will be lower.
On the flip side, repaying your car finance over a shorter period will reduce the overall cost of borrowing because you will incur fewer interest charges.
Ultimately, the length of your contract’s term needs to reflect your financial circumstances to ensure you can keep up with your monthly payments on time and in full. Car finance providers will calculate how much you can afford to repay each month using affordability checks.
PCP deals often set mileage limits for each year of the finance agreement. The more miles you intend on driving, the higher your monthly payments will be because, in the majority of cases, cars with more miles on the clock are worth less.
A PCP finance deal offering a lower annual percentage rate (APR) will keep your monthly payments down and reduce the total amount you pay over the course of the agreement.
Lenders will calculate your APR by doing a credit check. The better your credit rating, the more likely it is that they will offer you favourable interest rates on anything you borrow.
Be wary about lenders offering you low or 0% interest rates on PCP deals, as these will typically recuperate the money elsewhere, such as with an inflated balloon payment.
You’ll be financing the predicted depreciation of the car with PCP, meaning choosing a vehicle that will hold its value over time may end up working in your favour if you want low monthly payments.
For example, if you finance a car valued at £20,000 that car dealerships predict will be worth £15,000 in 3 years, your finance agreement will only need to cover the repayment of £3,000 plus interest (assuming put down an initial deposit of 10%).
Ultimately, the more money you need to borrow towards the financing of your vehicle, the higher your monthly payments will be. A bigger loan will also mean you end up paying more in interest over the course of the PCP contract.
If you’re looking to learn more about depreciation of cars, our recent research revealed the best and worst cars for depreciation when bought new.
Your lender will calculate and fix the interest rate (APR) at the start of your PCP finance agreement, so you’ll know exactly how much you can expect to pay back in each of your monthly repayments.
In a PCP agreement, you’ll pay a large chunk of the finance balance off at the end of the contract in what’s known as a balloon payment. Because of this, your monthly payments will likely be lower than they would be under a different type of car finance.
At the end of a PCP agreement, you’ll have three options:
Finance providers calculate the minimum guaranteed future value of your vehicle at the beginning of your PCP contract. So, even if vehicle market changes, making your car worth less at the end of your repayment term than at the start, you won’t need to make up the shortfall.
Having this figure in place provides peace of mind by protecting you from depreciation if used car prices plummet without warning. If this happens, the finance company will not charge you extra if you decide to hand the vehicle back.
If you go over your agreed mileage limit for the year, your finance provider will charge you a fixed amount per extra mile. This can quickly add up if you find yourself needing to do lots of additional journeys due to unforeseen circumstances.
You’ll need to make a large final payment to purchase the car from the finance provider at the end of the contract. This is known as the balloon payment. The size of your balloon payment will be explained before you start your agreement.
Even if you choose to hand the car back to the finance provider at the end of the agreement, you will still have paid interest on the full loan amount over the course of the contract.
Your PCP deal will account for fair wear and tear, but any damage that falls outside the scope of this will incur a fee. So, if you hand your financed car back at the end of the agreement in an unreasonable condition (i.e. with large scratches, dents, or mechanical faults), the lender will expect you to pay.
It is your responsibility to hand the car back in good condition. Your contract will outline what is reasonable wear and tear and what isn’t, but if you are unsure, the BVRLA’s guidelines on wear and tear can help you to understand more.
If a Personal Contract Purchase agreement isn’t right for you, there are other vehicle finance options available. It’s important you understand how each works so you can make an informed decision.
Conditional Sale (CS) is a type of finance agreement where the borrower pays back the total value of the car over a pre-agreed term. CS deals have fixed interest rates, so you know exactly what you’re expected to repay each month.
This could be a suitable option if you want to own the car outright at the end of the agreement. You will own the car as soon as you make your final payment, without any fees or balloon payments.
A Hire Purchase (HP) finance agreement is similar to a Conditional Sale agreement in that you will legally own the car at the end of the agreement.
The difference between HP and CS finance is that you’ll need to pay an ‘option to purchase fee’ to become the car’s legal owner when the agreement comes to an end.
A personal loan is a fixed sum of money you can borrow to help spread the cost of a one-off purchase into more manageable monthly instalments. Banks, building societies, and finance companies provide personal loans, but you might find it difficult to get approved for one if you have less-than-perfect credit.
As with other types of finance agreements, you’ll repay a personal loan with interest over a set period. Lenders calculate how much you can borrow and the interest rate they’ll charge using a credit check.
Find out more about the difference between personal loans and car finance with our guide.
With a Personal Contract Hire (PCH) finance agreement, you won’t have the option to purchase the vehicle outright at the end of the repayment term. You’ll only be making monthly payments to rent the car over a pre-agreed period. This is also referred to as leasing.
Like PCP finance deals, you’ll need to stick to a certain annual mileage limit to avoid additional costs. Most PCH agreements won’t allow you to change or terminate your contract early without a fee. However, a leasing agreement lets you have a newer car, and allow you to upgrade more frequently if you don’t mind the fact that you will never own it.
We offer a Conditional Sale agreement. There is no balloon payment involved, as you automatically own the car once you make your final payment.
If you’re on the fence about what type of finance you might want to take out, then make sure you take your time to understand more about our application process as well as what exactly a Conditional Sale agreement is. Here’s what you would need if you wanted to apply for CS finance with us:
If you have a car in mind, then make sure it fits within our lending criteria. But if you don’t, no need to worry! We can help guide you through the process. Find out how our car finance works.
At the end of the contract (i.e. when you have made all your monthly repayments), you will have the option to purchase the vehicle outright by making the balloon payment. If you decide you don’t want to keep the car, you can return it to the finance provider and end the agreement or take out a new one.
The main difference between PCP and HP finance is what happens at the end of the agreement.
With a Hire Purchase agreement, you make monthly payments towards the total value of the car over a pre-agreed term. At the end of the agreement, you can choose to own the car by making an optional final payment to cover administration costs. Unlike a PCP deal, there are no balloon payments with HP car finance deals.
You may be able to end your PCP finance agreement early, provided that you have upheld all of your contract’s terms and conditions.
If you want to end your agreement early, you’ll need to notify your finance provider and request an early settlement figure. This finance settlement figure will include the outstanding balance owed plus any additional fees and admin charges. In some cases, the settlement figure will be more expensive than the cost of continuing with your monthly repayments until the end of the PCP term.
If you have already paid off 50% or more of your finance, you have the right to request voluntary termination under the Consumer Credit Act 1974.
Until you have paid your finance off in full, you will be your car’s registered keeper, not its legal owner. The finance provider remains the legal owner until you make your final balloon payment. Because of this, you cannot make any modifications to your car without their permission.
Learn more about making changes to a financed car with help from our guide – can you modify a financed car?
Please note that Moneybarn do not offer PCP agreements. When you apply for any type of finance, there are certain checks involved, and the lender will ask for certain information.
Before approving an application for PCP finance, lenders will do a thorough check of your credit file. They will ask for personal details relating to your employment, residential and marital statuses, as well as your borrowing history. Learn more about what you need when applying for car finance.
Guaranteed Asset Protection (GAP) insurance policies provide additional peace of mind for people with financed cars by protecting them in the event of an accident or theft. If your vehicle is stolen or written off, your GAP insurance will bridge the gap between what you owe and the market value of your car.
This will be set at the start of PCP finance agreements based on how much car dealerships think the vehicle will be worth at the end of the repayment term (in other words, how much they predict it will depreciate by following ‘fair wear and tear’). This value is often referred to as the Guaranteed Minimum Future Value (GMFV).
You will make the balloon payment if you decide to keep the car at the end of the contract. For the car purchase example used here, the balloon payment will be £5,000.
You can either choose to pay it and keep the car, trade your car in and start a new PCP deal, or give the car back and there won’t be anything to pay, providing the car is without damage or excessive wear and tear.
If you choose to spread your vehicle finance over a longer period, the amount you pay each month will be lower.
On the flip side, repaying your car finance over a shorter period will reduce the overall cost of borrowing because you will incur fewer interest charges.
Ultimately, the length of your contract’s term needs to reflect your financial circumstances to ensure you can keep up with your monthly payments on time and in full. Car finance providers will calculate how much you can afford to repay each month using affordability checks.
PCP deals often set mileage limits for each year of the finance agreement. The more miles you intend on driving, the higher your monthly payments will be because, in the majority of cases, cars with more miles on the clock are worth less.
A PCP finance deal offering a lower annual percentage rate (APR) will keep your monthly payments down and reduce the total amount you pay over the course of the agreement.
Lenders will calculate your APR by doing a credit check. The better your credit rating, the more likely it is that they will offer you favourable interest rates on anything you borrow.
Be wary about lenders offering you low or 0% interest rates on PCP deals, as these will typically recuperate the money elsewhere, such as with an inflated balloon payment.
You’ll be financing the predicted depreciation of the car with PCP, meaning choosing a vehicle that will hold its value over time may end up working in your favour if you want low monthly payments.
For example, if you finance a car valued at £20,000 that car dealerships predict will be worth £15,000 in 3 years, your finance agreement will only need to cover the repayment of £3,000 plus interest (assuming put down an initial deposit of 10%).
Ultimately, the more money you need to borrow towards the financing of your vehicle, the higher your monthly payments will be. A bigger loan will also mean you end up paying more in interest over the course of the PCP contract.
If you’re looking to learn more about depreciation of cars, our recent research revealed the best and worst cars for depreciation when bought new.
Your lender will calculate and fix the interest rate (APR) at the start of your PCP finance agreement, so you’ll know exactly how much you can expect to pay back in each of your monthly repayments.
In a PCP agreement, you’ll pay a large chunk of the finance balance off at the end of the contract in what’s known as a balloon payment. Because of this, your monthly payments will likely be lower than they would be under a different type of car finance.
At the end of a PCP agreement, you’ll have three options:
Finance providers calculate the minimum guaranteed future value of your vehicle at the beginning of your PCP contract. So, even if vehicle market changes, making your car worth less at the end of your repayment term than at the start, you won’t need to make up the shortfall.
Having this figure in place provides peace of mind by protecting you from depreciation if used car prices plummet without warning. If this happens, the finance company will not charge you extra if you decide to hand the vehicle back.
If you go over your agreed mileage limit for the year, your finance provider will charge you a fixed amount per extra mile. This can quickly add up if you find yourself needing to do lots of additional journeys due to unforeseen circumstances.
You’ll need to make a large final payment to purchase the car from the finance provider at the end of the contract. This is known as the balloon payment. The size of your balloon payment will be explained before you start your agreement.
Even if you choose to hand the car back to the finance provider at the end of the agreement, you will still have paid interest on the full loan amount over the course of the contract.
Your PCP deal will account for fair wear and tear, but any damage that falls outside the scope of this will incur a fee. So, if you hand your financed car back at the end of the agreement in an unreasonable condition (i.e. with large scratches, dents, or mechanical faults), the lender will expect you to pay.
It is your responsibility to hand the car back in good condition. Your contract will outline what is reasonable wear and tear and what isn’t, but if you are unsure, the BVRLA’s guidelines on wear and tear can help you to understand more.
If a Personal Contract Purchase agreement isn’t right for you, there are other vehicle finance options available. It’s important you understand how each works so you can make an informed decision.
Conditional Sale (CS) is a type of finance agreement where the borrower pays back the total value of the car over a pre-agreed term. CS deals have fixed interest rates, so you know exactly what you’re expected to repay each month.
This could be a suitable option if you want to own the car outright at the end of the agreement. You will own the car as soon as you make your final payment, without any fees or balloon payments.
A Hire Purchase (HP) finance agreement is similar to a Conditional Sale agreement in that you will legally own the car at the end of the agreement.
The difference between HP and CS finance is that you’ll need to pay an ‘option to purchase fee’ to become the car’s legal owner when the agreement comes to an end.
A personal loan is a fixed sum of money you can borrow to help spread the cost of a one-off purchase into more manageable monthly instalments. Banks, building societies, and finance companies provide personal loans, but you might find it difficult to get approved for one if you have less-than-perfect credit.
As with other types of finance agreements, you’ll repay a personal loan with interest over a set period. Lenders calculate how much you can borrow and the interest rate they’ll charge using a credit check.
Find out more about the difference between personal loans and car finance with our guide.
With a Personal Contract Hire (PCH) finance agreement, you won’t have the option to purchase the vehicle outright at the end of the repayment term. You’ll only be making monthly payments to rent the car over a pre-agreed period. This is also referred to as leasing.
Like PCP finance deals, you’ll need to stick to a certain annual mileage limit to avoid additional costs. Most PCH agreements won’t allow you to change or terminate your contract early without a fee. However, a leasing agreement lets you have a newer car, and allow you to upgrade more frequently if you don’t mind the fact that you will never own it.
We offer a Conditional Sale agreement. There is no balloon payment involved, as you automatically own the car once you make your final payment.
If you’re on the fence about what type of finance you might want to take out, then make sure you take your time to understand more about our application process as well as what exactly a Conditional Sale agreement is. Here’s what you would need if you wanted to apply for CS finance with us:
If you have a car in mind, then make sure it fits within our lending criteria. But if you don’t, no need to worry! We can help guide you through the process. Find out how our car finance works.
At the end of the contract (i.e. when you have made all your monthly repayments), you will have the option to purchase the vehicle outright by making the balloon payment. If you decide you don’t want to keep the car, you can return it to the finance provider and end the agreement or take out a new one.
The main difference between PCP and HP finance is what happens at the end of the agreement.
With a Hire Purchase agreement, you make monthly payments towards the total value of the car over a pre-agreed term. At the end of the agreement, you can choose to own the car by making an optional final payment to cover administration costs. Unlike a PCP deal, there are no balloon payments with HP car finance deals.
You may be able to end your PCP finance agreement early, provided that you have upheld all of your contract’s terms and conditions.
If you want to end your agreement early, you’ll need to notify your finance provider and request an early settlement figure. This finance settlement figure will include the outstanding balance owed plus any additional fees and admin charges. In some cases, the settlement figure will be more expensive than the cost of continuing with your monthly repayments until the end of the PCP term.
If you have already paid off 50% or more of your finance, you have the right to request voluntary termination under the Consumer Credit Act 1974.
Until you have paid your finance off in full, you will be your car’s registered keeper, not its legal owner. The finance provider remains the legal owner until you make your final balloon payment. Because of this, you cannot make any modifications to your car without their permission.
Learn more about making changes to a financed car with help from our guide – can you modify a financed car?
Please note that Moneybarn do not offer PCP agreements. When you apply for any type of finance, there are certain checks involved, and the lender will ask for certain information.
Before approving an application for PCP finance, lenders will do a thorough check of your credit file. They will ask for personal details relating to your employment, residential and marital statuses, as well as your borrowing history. Learn more about what you need when applying for car finance.
Guaranteed Asset Protection (GAP) insurance policies provide additional peace of mind for people with financed cars by protecting them in the event of an accident or theft. If your vehicle is stolen or written off, your GAP insurance will bridge the gap between what you owe and the market value of your car.
Conditional Sale is the type of car finance that we offer at Moneybarn, and it doesn’t always require a deposit.
Understand all the different types of car finance that could be available to you. From Hire Purchase to Leasing.
Try our car finance calculator to see what a CS finance agreement with Moneybarn could look like for you.
Moneybarn is a member of the Finance and Leasing Association, the official trade organisation of the motor finance industry. The FLA promotes best practice in the motor finance industry for lending and leasing to consumers and businesses.
Moneybarn is the trading style of Moneybarn No. 1 Limited, a company registered in England and Wales with company number 04496573, and Moneybarn Limited, a company registered in England and Wales with company number 02766324. The registered address for these companies is: Athena House, Bedford Road, Petersfield, Hampshire, GU32 3LJ.
Moneybarn’s VAT registration number is 180 5559 52.
Moneybarn Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702781)
Moneybarn No. 1 Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702780)
