A couple getting their keys to their new car on pcp finance

PCP car finance

PCP finance is one of the most popular ways to buy a car. Use our guide to find out if it's right for you or apply now to get a quote in just a few minutes.

Zuto is a credit broker, not a lender. Our rates start from 10.6% APR. The rate you are offered will depend on your individual circumstances. Representative Example: Borrowing £8,000 over 60 months with a representative APR of 20.9% the amount payable would be £208 a month, with a total cost of credit of £4,486 and a total amount payable of £12,486.

What is PCP car finance?

Personal contract purchase (PCP) is a type of car finance that differs from various other types of finance in that it can act like a long-term car rental agreement if you choose not to make the final balloon payment. PCP lets you loan a car from a finance provider, with you making monthly payments over an agreed period – usually between 24 to 36 months, although some providers offer longer periods. You then decide at the end of the term whether to return the car, pay a ‘balloon payment’ to keep it, or get another car using any equity there might be in your car. This is explained in further detail below.

How does PCP work?

PCP finance is similar to hire purchase finance, but, instead of payments based on the car’s total value, you pay off its depreciation instead (the difference between what the car is worth now and at the end of the contract).

There are three simple steps:

1. Your deposit

Your deposit amount will depend on the agreement with your lender. Some of our lenders do offer low deposit car finance options, but some might ask for, for example, 10% of the vehicle’s value. This goes towards paying off the depreciation, so the more you can pay upfront, the less you’ll need to pay each month, and the less interest you’ll pay overall.

2. Monthly repayments

Your monthly repayments will pay off the car’s depreciation. You’ll also need to bear in mind the annual percentage rate (APR) which is the interest you’ll pay on top. For Zuto customers, this starts at 12.9%, but depends on the lender and your personal circumstances such as your credit rating.

Just let us know your budget and how much you can afford each month, and we’ll do our best to find you a deal from our panel of lenders which suits your requirements.

3. End of contract

At the end of your PCP contract, you’ll have three choices:

  1. Pay the balloon payment do this at the end of the term and the car’s all yours. You can find out more about balloon payments in our FAQs below.
  2. Hand the keys back – once the monthly payments come to an end, you can return the car to the lender and walk away. Some T&Cs will apply.
  3. Get a new car – if your car is worth more than expected at the end of the finance term, you can’t claim the cash, but you can put that difference – known as equity – towards the deposit of a new car. For example, if your car was expected to be worth £5,000 but it’s actually worth £6,000, you can put £1,000 towards the deposit of your next car.

Personal contract purchase vs hire purchase

Compare the differences between personal contract purchase and hire purchase finance:

Finance features:Hire purchase (HP)Personal contract purchase (PCP)Personal loan
Requires initial depositOptionalOptional
Car is yours at the end of the agreement
Fixed monthly payments
Avoid (final) balloon payment
Avoid excess mileage charge
Secured against an asset (e.g. a car)
Support with vehicle issues

PCP finance example

To help put PCP into perspective, here’s a quick example.

Let’s say you’re looking for a two-year deal.

The car is priced at £15,000 and is expected to be worth £8,000 at the end of the agreement, so its value will have dropped (depreciated) by £7,000.

You can afford a 10% deposit (£1,500), which means you need to finance £5,500.

Here’s what you’d pay, based on 12.9% APR:

  • Deposit: £1,500
  • Amount of credit: £5,500
  • Monthly repayments: £347 (total £8,328)
  • Optional final balloon payment: £8,000

The total without buying the car will be £9,828, or £17,828 if you make the final balloon payment.

Is PCP finance right for you?

Advantages of PCP

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  • You can possibly consider getting a better car (one that is more modern, fuel efficient, safer, for example) sooner than you might otherwise be able to afford.
  • Monthly payments are usually lower than hire purchase as you just pay off the depreciation
  • You could reduce your monthly payments by opting for a longer loan period
  • It’s easy to roll a PCP deal over at the end of the term to get a new vehicle.
  • You have the option to buy the car at the end of the agreement.

Disadvantages of PCP

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  • Exceeding the agreed annual mileage limit may mean you have to pay a financial penalty for each mile you exceed it by.
  • If you are unable to make your monthly payments during the term, you may have to return the car.
  • Your car must be kept in good condition to avoid damage fees.
  • If you can’t afford to make the balloon payment at the end of the term, you will have to hand the car back or start a new PCP deal.
  • PCP deals tend to be available only on newer cars, which might make buying an older model more difficult.

What to think about before applying

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  • Your credit rating – the better your credit score, the more likely you’ll get a better deal. If you have a poor or bad credit rating, don’t worry, our panel of lenders may still be able to help you get bad credit car finance
  • What you can afford – work out how much you can afford to borrow by using our PCP car finance calculator and consider other costs such as fuel, insurance and tax.
  • Mileage – your deal will probably have a mileage limit. Make sure you know you can keep within it.
  • Wear and tear – the car’s depreciation is based on the vehicle being in a good condition at the end of the agreement. You’ll need to pay for any damage at the end.
  • Other types of car finance – the alternative car finance options are HP car finance and a personal loan.

What happens when I apply?

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  1. Fill in some personal details – we’ll need to know details like how much you would like to borrow, your address, your employment etc. Our online application form should only take a few minutes to complete.
  2. We’ll check your credit score – our lenders will carry out a check which allows them to understand if you’ll be approved for the finance.
  3. We’ll call you to discuss your quotes – the call usually takes around 5 to 10 minutes. There’s no pressure to agree to anything and quotes are valid for 30 days.
  4. You can agree to a PCP car loan – if one of the deals works for you, let us know. We’ll run a full credit check, which is marked on your credit history, and get a formal offer from the lender.

Useful information and guides

  • cms-tick

    Difference between leasing and financing

    If you're considering a new car, our guide will explain the key differences between financing and leasing.

    Financing vs leasing
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    How to prepare for car finance purchase

    Zuto has a variety of car finance products available so preparing for which is the right one for you is key.

    Read our guide
  • cms-tick

    What's the difference between HP & PCP

    Ever wondered what the differences between HP and PCP finance are? Read our guide to find out.

    HP vs PCP


Discover the questions our customers are asking about PCP car finance.

Can I use PCP to finance a used car?

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Yes you can. Zuto helps with used cars and is a trusted AutoTrader partner.

Can I get PCP with any car dealer?

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Zuto has a list of approved dealers. When you apply for a quote, you can browse cars from these trusted dealers.

What’s a balloon payment?

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A balloon payment is what you can pay at the end of a PCP agreement to fully buy and own the car. It’s also known as the Guaranteed Minimum Future Value (GMFV).

Will I pay more with PCP than the vehicle is worth?

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Yes, because interest (known as APR) will be added to your monthly repayments. However, the monthly cost means you might be able to drive a better car than you would otherwise be able to afford with cash or other finance types. This is because the loan is based on the difference between what the car is worth now and at the end of the contract, with a larger payment to make at the end of the finance (balloon payment).

If you don’t buy your car outright, you might also be charged for any damage to the car at the end of the agreement.

Can I pay off my PCP agreement early?

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Early settlement or termination depends on the contract with your lender. When you make an application, one of our team will be able to talk this through with you.

What happens if I miss a payment?

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The most important thing is to make sure you only agree to pay what you know you can afford, but circumstances can change. The impact of missed payments depends on your lender; if you fall behind, you may be able to hand the car back (but potentially with something still to pay) or the finance company might repossess your vehicle.

Can I change my car during the contract?

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This will depend on when you would like to change and the agreement you have with your lender. Please talk to one of Zuto’s advisers for any support.

How much deposit should I put down on PCP?

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Various factors can influence what deposit amount you should put down on a PCP finance deal. These include your own financial situation and what you can afford, the value of the car and the finance provider’s own policies. Typically, a deposit of 10% up to 30% is common. The more you put down as a deposit, the lower your interest costs will be, and therefore the lower the amount you’ll pay overall. There are also many no deposit finance options available.

How old can a car be for a PCP finance deal?

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The age limit of a car on a PCP deal varies from lender to lender. Generally, the car will need to be under 4 years old when the agreement starts, and no more than 7 years at the end of the agreement. This is why PCP deals tend to be for newer cars, as they’re more likely to retain value.

What is the difference between PCP and lease?

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A PCP agreement gives you various options at the end of your finance agreement with the lender. You can return the car, use equity to buy another, or make a balloon payment to own it outright. The only option you have with a lease car is to hand the car back at the end - you have no ability to purchase it. Both involve monthly payments, but you’re paying for different things. With a lease, your regular payment is based on the car’s loss of value during the lease. With PCP, the monthly payments are determined by the depreciation, which is the difference between the initial price and the projected minimum value at the end of the term.

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