Personal Contract Purchase: The PCP explained

Car finance advice
Car finance, PCP, personal contract purchase, car dealer

Are you looking for the best guide on the internet to personal contract purchase (PCP) car finance and how it works? Are you unsure about the jargon car dealers use? And what are the real implications for your finances?

Well, we’ve comprehensively overhauled The Car Expert’s guide to how a personal contract purchase works.

This article has been the most popular piece at The Car Expert for the last three years. So we decided it was about time to give our guide to “What is PCP car finance?” a thorough overhaul and update.

This guide will help you understand everything there is to know. But if there’s anything you’re not sure of by the end, ask us a question in the comments below.

The PCP (personal contract purchase or personal contract plan) is the most popular car finance product on the UK market for both new and used cars. Most car manufacturers and car dealerships push PCPs pretty hard. But what is PCP car finance? How does it work and what should you be looking out for? 

The Car Expert has previously looked at different types of car finance available. But it’s clear that many thousands of people are unsure how a PCP really works, despite the number of people who use a PCP to buy a car.

Discussing car finance, like a hire purchase or PCP, in a car showroom

In fact, research from 2015 suggested that a staggering 88% of men and 75% of women surveyed could not explain what a PCP was. The good news is that if you fall into that category, you’re certainly not alone!

If you want to brush up on your car finance jargon, we’ve produced this most excellent glossary:

At most dealerships, PCP car finance is usually offered by the manufacturer’s own finance company. The offers tend to be much better on new cars than on used cars. That’s because car manufacturers are far more interested in selling you a new car than one they built a few years ago.

There are other lenders who also offer PCPs, but they are not normally competitive with manufacturer finance on new cars.

What is a Personal Contract Purchase?

A PCP is a form of car finance based on a Hire Purchase (HP) agreement. It’s often incorrectly referred to as a personal contract plan (rather than purchase).

In a traditional hire purchase agreement, you pay off the entire value of the car in equal monthly instalments. A PCP differs in that you have lower monthly instalments that only cover the car’s depreciation, and then a very large final payment at the end.

This final payment is often known as the balloon (also known as the Guaranteed Future Value, but that’s actually a slightly different thing). You have several options as to how to deal with this final amount, depending on whether you want to keep your car or change it.

In comparing a PCP and HP, you are usually borrowing the same amount of money and paying a similar amount of interest (usually slightly more on a PCP). The fees for both finance products are usually about the same as well.

What is the attraction of a PCP?

If you compare financing the same car on a PCP against an HP, the big difference is that you are paying off a much smaller amount of your debt via your monthly repayments. This means:

  • Your monthly payments will be much lower, and/or
  • Your initial deposit will be much lower, and/or
  • Your repayment term will be shorter

Most people tend to change their cars about every three years. Most buyers also have a reasonably small deposit to put down. For this sort of situation, a PCP gives you a much lower monthly payment than an HP. However, there is a large caveat – at the end of the agreement, you have to take action of some sort to settle the outstanding debt (the balloon). If you don’t, you will be stung hard.

This means that on a PCP, the same car costs considerably less per month to finance than on an HP. Alternatively, you can buy a more expensive car for the same monthly payment. This is what makes a PCP so attractive to car buyers.

For a car dealer or car manufacturer, a PCP has two main benefits:

  1. Lower monthly payments on a PCP mean more customers can afford more of their cars
  2. Customers can’t usually afford to pay off the balloon amount, so they are effectively forced to buy another car on another PCP. As a result, the dealer/manufacturer has a good opportunity of securing repeat business.

Next page: Breaking down the PCP

Stuart Masson
Stuart is the Editor of The Car Expert, which he founded in 2011, and our new sister site The Van Expert. Originally from Australia, Stuart has had a passion for cars and the car industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.


  1. Hi Stuart

    Firstly, like others previously, can I say just how informative this site is and how helpful you have been in responding to everyone’s questions – some of which are repeats so I expect you find it a little frustrating answering the same question.

    I hope you dont mind me asking one more.

    I have a 42 month PCP with Seat however am looking to buy a Kia. I have gone over my allowed mileage and also i am in a little negative equity based on this additional mileage I have done. I am in the middle of negotiating deals with various Kia dealers, but with regards to the mileage, do I have to pay the additional mileage charge? I am assuming not as I am not handing it back to Seat. I am using the car as part exchange and the lack of equity is being swallowed by the dealership within their proposed discounts so it really does come down to whether or not I have to separately pay anything regarding the excess mileage.
    Any help you can give would be amazing thank you


  2. Stuart Masson

    Hi John. You are selling your car to the Kia dealer, who will settle the outstanding finance and then sell the car. You don’t need to worry about charges for excess mileage, servicing or anything else.

  3. Hi Stuart, First thank you very much for all this information.
    My questions pcp hand-back, but first some brief background: I have a VW Up which comes to the end of it’s PCP on 12th March. I intend to hand the car back, and I have told VW finance that I am doing so. I tried to get ahead of the game, and to arrange the hand-back for the last week of February. This is because I will be on holiday in the first two weeks of March. After a couple of confusing phone-calls and misinformation from VW Finance, they finally said on 16th Feb that they would set up the hand-back with British Car Auctions and asked me to call BCA today 18th to organise the collection. I called BCA today and it turns out that VW have not even begun the process of setting up my hand-back. In talking to VW Finance this morning, they said that they would trigger the hand-back today, and that it would be another two working days before I could call BCA. BCA apparently need about two weeks to set up the hand-back, so that means it is unlikely we could do this before I leave for holidays. I am happy to let the car sit on my drive until I return from hols, but the tax and MOT will have expired by then. The car will also be due it’s annual service, though there is a bit of flexibility on the exact date of that. I have kept the car serviced under a VW plan, and it’s last service was 13th March 2015. Specifically, tax runs out on the 29th of Feb, insurance 19th March and MOT is due before 12th March. My questions are as follows:

    1. In the event that BCA cannot collect before I return from hols on 14th March, do you think I will be liable for the costs of the MOT and tax? I raised this issue with VW Finance last week, and they just said that if the car could not be legally driven and had to be transported by BCA, there would be a £200 fee. Other than that they were vague.
    2. I am liable to service the car in accordance with VW’s schedule, and I have done so, but what about this last service due on the 13th (plus or minus a couple of weeks I think). I am not keen to pay for a service on a car I will not own.

    All advice welcome.

  4. Stuart Masson

    Hi Michael. Usually the finance company is happy for you to take the car to your nearest BCA site, which would be an option for making sure it is done before your road tax expires.

  5. Thanks Stuart. I asked about that and they (VW Finance) said that the BCA site would be Measham. This is doable, but about 60 odd miles (I am in South Birmingham). I will try them again as there is at least one BCA in Birmingham.

  6. Hi Stuart

    I am coming to the end of a 3 year PCP agreement with Ford and have 3 payments left to make ( Deal ends in May)
    I have just signed up for a new car and PCP deal with VW and the salesman says he can have the new car by early March
    The salesman recommended doing a VT on my current PCP deal so I can hand the car back to Ford early and pick up the new car in a few weeks.
    Would this harm any possible finance with Ford in the future?
    I don’t want to do a VT if it puts a black mark on my credit history.

    The car is in excellent condition and is under the mileage.
    I have got a valuation and it slightly more than the settlement figure.
    I’m not looking to claim any equity out my current car.
    Do you think Ford would take back the car and let me out of the aggrement early?


  7. Stuart Masson

    Hi Gary. If the valuation is more than the settlement figure, then there is no point VTing the car or handing it back – you may as well sell it and make a small profit.

    The salesman would love you to VT the Ford now and take the VW sooner rather than later, because he is only concerned with his commission. Make sure you are making decisions based on what is best for you, rather than what is best for the dealership.

    As for whether VTing your current car would preclude another finance deal with Ford, it’s impossible to say with certainty. Plenty of people have reported no problems with VTing their car and taking another one from the same finance company, while others have confirmed that they have been rejected for subsequent finance agreements from the same company after VTing. However, I haven’t heard either story from Ford Credit customers. Again, the VW salesman won’t care about your future prospects with Ford or anyone else; he’s only interested in getting you into a VW in March instead of May, regardless of whether it’s a good idea for you.

  8. Hi Stuart

    Thanks for the advice.


  9. Hi Stuart,

    Thanks for this very informative article and thanks for answering all the questions!

    I feel in pretty well informed now after reading this, but I’m still a little bit confused by the concept of “swapping for a new vehicle” that dealers like to keep shouting about. Surely it’s not as simple as just swapping for a new car at the end of your term? In reality, isn’t it “pay a hefty deposit or have your monthly Pcp payments rise significantly and swap for a new car at the end of your term” ?

    I’ve paid a 3k deposit and will be paying £129 for 48 months, with a final payment of £4,365. Surely I’m not going to be able to just hand the car back and carry on paying a similar amount for a similar spec new car without fronting up for a deposit again?

    Why do dealers imply you will have equity in your car on these deals when you likely will not?

  10. Stuart Masson

    Hi James. You are correct – you will probably need to find another significant cash deposit each time you want to start a new PCP.

    Dealers will tell you whatever it takes to get your signature on a contract. But because it’s all forward forecasting and predicted values, they are not technically lying…

    Always assume that you will have no equity at the end of a PCP. If you do have anything, consider it a bonus.

  11. Indeed! This whole “….or, just swap it for a new car!” stuff from the dealer isn’t quite right is it…..?

  12. Hi Stuart,

    I am 26 months through a 48 month PCP agreement and was considering my options for either ending the deal (VT) or trading for something else. I stumbled across your website and discovered that most PCP deals require you to service the car at the dealership. I wasn’t aware of this and have had my last service and MOT done at my local garage. I have read through all of the documentation that I received at the time of the purchase and can’t see any term that makes it clear that this needs to be done. Nor do I recall the salesman mentioning it at the time. It is only after browsing your website and then downloading Audi’s “Fair Wear and Tear” document that I see the servicing requirements mentioned.

    I would like to ask if a) I will be penalised, and to what degree, when I hand the car back and b) whether it could be considered unfair that I was not made aware of this term at the time of the purchase.

    Thanks for your time


  13. Stuart Masson

    Hi John. For more information about VT requirements, have a read of our article about Voluntary Termination.

    You should be able to VT the car without servicing at the Audi dealership, and if you are part-exchanging the car it won’t matter (other than in value). It only matters if you are giving the car back and claiming the Guaranteed Minimum Future Value (GMFV). Have a read of our article about servicing your car if you have a PCP.

  14. Hi Stuart,

    Thanks for your swift response. My concern was that in the Fair Wear and Tear document it stated “If work is carried out on your vehicle by non-Audi Authorised mechanics, or there is an incomplete service history, you could be charged at the end of the contract in order to compensate for the reduced value of the car at re-sale.”

    Not being particularly experienced with purchasing cars and being mindful that dealerships often try and extract money from customers where they can i was slightly concerned.



  15. Stuart Masson

    The Audi clause relates to the guaranteed future value only. It is not enforceable in a VT situation, because the law only states that you must take reasonable care of the vehicle. It could easily be argued that a good independent garage would take reasonable care of your car.

    You are correct that dealerships and finance companies will always try and extract money from you where they can, and they are often reliant on you not knowing your rights – which is one of the reasons this website has become so popular…

  16. My daughter has PCP, she is just over half way through a 4 year contract on a Renault Twingo. She is well over the amounted mileage she is allowed for the 4 years. What are her options? She contacted the franchise about what to do and basically she was told it would be sorted at the end of her agreement. How do we find out what she has to pay per mile over the allowed mileage? Many thanks

  17. Stuart Masson

    Hi Karen. Contact the finance company rather than the dealer, as the car belongs to the finance company and they may be able to amend the payments to allow for the increased mileage. It no longer has anything to do with the dealership, as once they have sold the vehicle it is not their problem.

    The finance contract should state the excess mileage cost if it is paid at the end of the agreement – it’s usually about 10p/mile (or £100 per 1,000 miles).

  18. Thank you so much for your reply. Much appreciated.

  19. Hi Stuart,

    I have bought numerous new or pre-registered cars but always used cash or personal loans. I have been offered a deal on a new car using PCP, whilst I understand the principles of it I am uncertain for any pit falls to look out for and have also been considering the same car on a personal lease arrangement.

    The deal offered is deposit of £499 and £255 a month over 36 months at 4.9% APR with balloon of £11,208 based on a cash price of £19,499 for 10k p.a with £2,500 finance deposit allowance.

    They have offered to take my current car as part ex so to speak and give me the value of the car in a cheque.

    The deal appears to be to good to be true, am I missing something or could they be just desperate to sell their car as the deal needs to be completed this month….

    Any advice would be appreciated.

  20. Stuart Masson

    Hi JR. The deal sounds about right. If you add up the total amount listed there, you get to £23,387 (plus any fees which you have not mentioned). That’s about what you’d expect on a £19,499 car. The £2,500 deposit contribution means they are keen to sell the car this month. If you would like more information about how to keep the deposit contribution without the three years of finance, have a read of our article about deposit contributions.

  21. Hi Stuart,

    I am approx 18 months into a 48 PCP contract. I am already considering changing my car as my circumstances are set too change and a different model would be more suitable. Is it possible to part exchance my car for a different model, yet still remain on a PCP contract? Or do I have to wait the 48 months before I can consider a change? Also, if the car I wish to exchange for, cost less, will the monthly repayments of my PCP reduce?

    I would appreciate any advice.

    Kind Regards

  22. Thanks Stuart, there are no fees associated with the deal, however, I have been told that the balloon payment is now £10,208 – why does the same car’s GMFV vary from dealer to dealer with the same finance company?

  23. Stuart Masson

    Hi Rob. If you want to change your car, you need to settle the existing agreement and then start another one with your next car; you can’t transfer an agreement between vehicles or owners. Have a read of our article about settling your PCP early.

  24. Stuart Masson

    The GMFV is set by the finance company, not the dealer, and it’s usually worked out by a computer based on the car’s age, specification and mileage. If you are looking at used cars, every car will be slightly different because every car is slight different. If you are looking at new cars, the GMFV should be the same each time if the same parameters are being entered.

  25. Hi.
    My father died in February 2016 and has a VW PCP arrangement which he took out in June 2015. What are my options please? I want to be for armed before speaking with VW solutions. Thank you

  26. Stuart Masson

    Hi Manda, sorry to hear about the loss of your father. My understanding is that Volkswagen Finance will be a creditor in your father’s estate, meaning that they will either claim the cash value owed to them, or claim the car back and any outstanding balance. I suggest visiting the excellent forum at, which will probably have much better advice for you on this topic and how to manage it best.

  27. Hi Stuart. We bought a used car on pcp and after 2 years we exchanged for a brand new car. The thing is the new car is too small. We have gone back to the dealer and explained this and although we had the final say on the car, the sales rep did not say it will be too small a car for a family of 4. Infact the sales rep said it is plenty big enough. So now they have our car and are letting us drive demo cars while they try and sell it.
    They have had it from 2 months old and it will be a year old in June. We’re not sure what to do as the sales manager has said that the deals are much cheaper on new cars than used. We understand this but unsure where we stand with handing the car back or exchanging it elsewhere.
    We dont know if it is still in negative equity. We just want to get this sorted, they have treated us really well by letting us drive around in cars while we still pay for the one their trying to sell. Thanks Jaime

  28. Stuart Masson

    Hi Jaime. It’s unusual for a dealer to be happy for you to drive their demonstrator cars for months on end, so I’m not sure what their position is – it must be costing them thousands.

    You will almost certainly still have significant negative equity at this time. You can contact the finance company and find out the settlement figure, and the dealer will be able to tell you what the current value of your car is. However, usually a car does not reach equity on a PCP until quite near to the end of the agreement.

  29. Hi there
    Weve got a car on pcp over 36 months interest free. Seve been trying to terminate it early but said we cant do this till another 7 months which means we would of had the car 28 months. We looked at paper work today and seen theyve actually included the balloon payment in the finance agreement at the 36 month payment. We was under the understanding of paying 36 months of the monthly payment then having the choice after the 36 months to pay the balloln figure give the car back or take a new car put. Should this balloon figure be included in our finance agreement?
    Many thanks

  30. Stuart Masson

    Hi Nicole. You can voluntarily terminate the contract at any time, however you still have to pay off 50% of the total amount payable. So if you haven’t paid off enough to cover that yet, you would have to pay whatever was still owed to get you to 50%.

    Yes, the balloon is included in your finance amount, as you have borrowed that money. You settle the finance by paying it back as a lump sum at the end of the agreement, or by giving the car back (whose value is the same as the amount owed). Therefore, the balloon amount is included in the VT calculation. For more information, read our article about voluntary terminations.

  31. Hello Stuart

    The answer to my question may already be somewhere in this thread, so apologies is that’s the case. If I hand back a car financed on PCP (at the end of the term, before the balloon payment is due), can I just start another PCP deal… and when that’s finished another after that… and so on? Thereby avoiding a balloon payment? Are there any penalties… or will it affect my credit in any way?

  32. Stuart Masson

    Hi Darren. Yes, that’s what most people do. Instead of a case settlement for the finance owed on a PCP, you return the car which covers it. This completes the agreement, and you go off and start another one.

  33. Hi Stuart,

    I am not clear on how is the PCP treated purchased by a Company. You’ve referred to a PCP as a Hire Purchase which it is, probably with a difference where you can return the car. Is a PCP a Finance Lease, Operating lease or a Hire Purchase??

    Thanks in advance

  34. Stuart Masson

    Hi Aamit. A PCP is a type of hire purchase, not a lease.

    A lease is simply a rental, not really any different from going to Avis and renting a car for a few days, except that it’s usually for a few years.

  35. Hi Stuart,

    Good article – missing a couple of points:

    1. On PCP you should always put in as small a deposit as possible – this is because you are moving purchase of car from in business terms, capex to opex – I.e. you are financing it as an effective rental on a monthly basis – handing over a large deposit is effectively lost money as you will never get anywhere near it back at the end of the PCP term. This can lead to a position where a similar car can’t be afforded on the 2nd PCP as the monthly figures would suddenly rise significantly!

    2. No mention that you can (and should) still haggle on the price of the vehicle bring financed on PCP – e g I recently negotiated over £4000 off the list price on a new fiesta, effectively reducing the monthly payments by £166 per month over the 24 month terms. Also beware of the options bring added to the car as you rarely get anything back for these at the end, e.g. metallic paint on a fiesta is over £20 per month on a 24 month term.

    When keeping a vehicle PCP with manufacturer incentives it is often cheaper than HP especially combined with low interest rates on the interest only loan of the gfv. E.g. ford currently give £950 off on a fiesta and interest rate of 0.9%, effectively they are paying you nearly £800 to have the car on PCP. This makes PCP cheaper than HP especially if over the PCP term the difference in payment between Pcp and HP is saved to give to the finance company at the end of the PCP term.

    The Calculator on my website has been designed to fairly accurately (within a few pounds) get the correct per month (or per mile [if you desire]) figure taking into account incentives, etc. The only thing it does not do is the gfv as this figure is not available to the public.

  36. Stuart Masson

    It is not necessarily true that you should put in as small a deposit as possible; this is something that dealers always say because they are making commission on the amount being financed. You pay interest on every pound financed, so if you would rather pay more up-front and less each month, you are ultimately paying less overall. The “lost money” argument is rubbish.

    The article specifically had nothing to do with price negotiation; it is about how a PCP works. It also specifically avoids reference to offers, as obviously any offer on a specific product will affect its competitiveness relative to another product.

    And if your PCP calculator doesn’t take a GMFV into account, it’s not much of a PCP calculator…

  37. Hi Stuart
    I am currently on my 3rd passport finance deal with Peugeot each one been over 3 years. It is due to finish in September and obviously the bubble payment is massive and not worth it and we want to hand the car back and shop around for another deal. However, when we have returned the cars in the past and exchanged for a new one they have hardly inspected the car. I have heard horror stories about been billed for every little ding or scratch the car may have and i feel we are locked into this awful passport deal. Any advice would be really appreciated?

  38. Stuart Masson

    Hi Joanna. The T&Cs of your agreement will refer to ‘fair wear and tear’. this is a very broad description, and can be used as a point of negotiation by the finance company to charge you for damages. You can argue any claim from the finance company for damage repairs, as often they are just trying it on in the knowledge a large number of people will just pay up.

  39. Hi Stuart,

    Great site and fantastic information!

    I’m sure my questions have been asked in part before but here goes …

    I’ve recently bought a Land Rover Discovery Sport on a PCP deal.
    While finalising things at the dealer, the finance manager mentioned ‘partial payments’ and I quizzed him on reducing interest over the life of the deal etc. He said I could pay all the ‘monthly payments’ in one lump sum if I liked (or multiple smaller lump sums), circa £10k in total, and essentially have no monthly payments for the life of the PCP deal (36 months), significantly reducing interest, and only having the £17k balloon payment to think about at the end. I then asked if there was interest on the £17k; he said “yes” but I’d only really pay for this if I planned on keeping the car at the end … he suggested either giving the car back and paying nothing, or … if the car was worth more vs. the GMFV, selling it privately, paying off the finance and pocketing the difference.

    Now this all seems somewhat bizarre to me, and clearly there’s a catch – but where is it??

    Here are some numbers:
    *Purchase price = £32,900
    *Deposit = £10,000
    *Amount remaining on finance = £22,900
    *Charge for credit = £4,188
    *Repayment balance = £27,088
    *Total amount payable = £37,088
    …. monthly repayments = £278; and the final balloon payment = circa £17k.

    1. If he’s right and I pay the monthly payments more or less upfront, will this dramatically reduce the £4,188 charge for credit? (if yes, how can I calculate this? – I assume if this is a lump sum payment it wouldn’t be close to the £278 x 36 months = £10k expectation … but much less).
    2. If I decide to hand the car back at the end, will I ever pay any interest on the GMFV £17k?

    The reason this is interesting to me is not only the interest rate savings … it looks like you can buy a car with minimal interest, not having to pay the full amount upfront (or ever!) by leveraging the ‘partial payments’ + balloon payment mechanism – assuming you have some cash to finance the monthly payments early at the beginning of the PCP deal.

    Would be really interested in your thoughts here – a loophole?

    FYI, I’ve checked with Land Rover Finance and they have confirmed that there are no penalties for what I’m suggesting re: the ‘partial payments’ …

    Thanks in advance!


  40. Stuart Masson

    Hi Nick. The finance manager is not being entirely truthful. You are paying interest on the total £22,990 borrowed, which includes the GMFV (that is the interest figure of £4,188.). PCP deals are what is known as ‘front-loaded’, which basically means you pay off most of the interest before you start paying back the capital.

    If you make early or partial payments, this will reduce the total interest payable as you have less money borrowed to be paying interest on – much like overpaying your credit card reduces your interest payable compared to just making your minimum monthly payment – but the calculations will still be based on the entire £22,990 (£17K of which will be borrowed for 36 months, even if you repay the rest immediately).

  41. Hello there, I must admit to burying my head in the sand with finance although at the time of changing my car I like to think I push for a good deal. I normally have finance for 36 months then change to a new car every three years. The car is due to be changed in September this year but my finance has another year to go. I foolishly signed up to a 49 month agreement last time to bring the monthly payments down. Should I hang on another year before changing my car? The price the dealership is offering for part exchange is ridiculously low and even though the mileage is 15,000 less than predicted I’m in negative equity of about £300. They are offering a pretty good deal on a new automatic golf (£20,693 with £2693 discounted) but with a 42 month finance deal. I’m stumped. Help!

  42. Stuart Masson

    Hi Sue. We are not able to advise whether you should change your car now or hold onto it. What we do is draw your attention to the relevant points you need to consider to make the best decision for your situation.

    If you have negative equity of £300, then you need to pay £300 to get rid of your current car as well as coming up with the deposit for a new car. The flip side to that is that you probably would not have to service or MOT the car, which would likely cost about £300 anyway.

    The deal on the new Golf may sound attractive in terms of the discount on offer, but it depends on whether or not the overall deal works for you. It’s a 42-month term, so shorter than what you have now but still six months longer than you prefer. You need to look at the amount of interest you are paying (represented by the APR figure) and the total monthly payment to determine if it is within a comfortable limit for your income.

    You should also carefully check the exact specification of the new vehicle against your current car. There are always swings and roundabouts in terms of equipment, and while a salesman will always trumpet any new features you don’t currently have, it’s interesting how often they forget to mention that several other features are no longer included or will now cost extra…

  43. Thank you for replying so quickly, Stuart. I’m just getting a little bogged down with the figures – not helped by the fact that I always assume the dealer is ‘getting one over on me’ and I never know just how far to push it. New spec is fine, actually more than I have in my manual ’63 golf. APR 5.4%, the payment are £10 more than I was paying – which I don’t want. How much should I be pushing for a better part exchange? I know they need to make a profit but the £9800 they are offering is a lot less than the £12500 cars with similar mileage, year etc are currently selling for. I guess what I’m basically asking is where should I focus my negotiation and which bits make no difference on the financial agreement?

  44. Hi Stuart,

    I’m somewhat confused about my PCP finance and have a question about my PCP as it’s almost at the end.

    I’ve received a letter from Citroen finance informing me of the 3 choices as the agreement ends in December.

    On the return option, it states that I apparently chose to finance an insurance premium with my vehicle. I’m informed this is GAP. A final payment of £180 on the insurance element of my agreement will need to be paid if handing the car back. This figure is hidden within the final payment to purchase also.

    The question is, is this normal to pay roughly half the premium over 36 months and then pay the remaining half in cash at the end?

    I’m also annoyed because I would never purchase GAP through the main dealer, and was told at the time that i’d be getting it free.

    Many thanks for your help


  45. Stuart Masson

    Hi Mark. You will need to check your vehicle contract, as it should have GAP insurance included on there and a price (even if it is £0). Unfortunately, there are dealers who will try and sneak GAP insurance into a deal, one way or another, because it boosts their commission. If they give it to you for free, they don’t get paid commission, so often they will discount the vehicle by the same amount as the GAP insurance costs – so you pay £500 for GAP and get £500 off the car.

    You can’t finance GAP insurance as part of your PCP, so it will have probably been set up in a separate arrangement but with all the figures presented to you in a combined total.

    If you take the matter up with the dealer, or with Citroën UK, you may be able to get this charge reimbursed. However, it would probably involve a lot of arguing and threatening to complain to the FCA about misconduct for them to go along with it.

  46. I’ve scraped the back door and bumper on a concrete post on my PCP Audi Q3, will I have to have this repaired before I return to get a new car or will dealership repair and lower value of existing car??

  47. Stuart Masson

    Hi Kevin. Generally, you are better getting the repair done yourself. If you don’t, the finance company will charge you whatever they like for the repair, which is almost certain to be a lot more than you would pay yourself.

  48. Hi Stuart,
    My PCP agreement ends next July but I’ve had it serviced over the years by a local garage. How much will this affect any equity? Also, I need a new tyre will they expect this to be a like for like on what it came with at the time of purchase?

  49. Stuart Masson

    Hi Stacey. If you plan to return the car to the finance company and claim the GMFV, you will probably be penalised heavily for not having the car serviced by a franchised dealer. If you are not giving the car back, it will slightly reduce the car’s value but hopefully not by too much.

    With your new tyre, it’s a similar story. If you are giving the car back, the finance company will expect an approved tyre. If you’re not, you can buy whatever you want.

  50. Thanks Stuart. I’ve had a like for like tyre fitted. The car has been serviced with genuine Peugeot parts so hopefully they will be more lenient. I’ll talk to them at the time regarding the GMFV and if it’s massively effected I may look into privately selling

  51. Hi Stuart.
    I am hoping you can offer some advice as I am looking at my 1st PCP deal and although at first I thought it sounded very good I am now not so sure..
    A dealership has offered me the opportunity to pay £1000 less deposit than an advertised deal, alongside a monthly payment which is £35 less than again the advertised offer for the same yearly mileage etc.
    Having considered this, and not yet questioned the GMFV my concern is that the result of this ‘good’ deal in the short/med term will simply result in me not paying off as much of the car and being left with an unrealistically high GMFV leaving me with no equity in the car at the end of the agreement.
    I hope this makes sense and would greatly appreciate any information.

  52. Stuart Masson

    Hi Jamie. The £1,000 less deposit is what is called a deposit contribution, and is basically a discount which is contingent on your signing up for their finance offer.

    The monthly payment reduction could be a few things (or a combination of them all): they may be discounting the price of the car, so you are borrowing less money; they could be reducing their commission on the finance; or they may have extended the term (for example, making it four years rather than three). the first two options are great, the last one not as they are locking you in to a longer contract which will cost you more money overall.

    The GMFV should not be affected by any discounting on the price of the car now, as its future value will not change based on the deal you do today. However, always assume there will be no equity, regardless of what they tell you. Having equity at the end is a bonus these days, but usually there won’t be.

  53. HI Stuart,

    Firstly, you have provided some fantastic advice in the complicated world of PCP which is much appreciated.

    We are due to hand our PCP car back in 6 months time with an ever so slightly loose front bumper. Our local garage has said it would take a lot of work to take the bumper off to inspect and provide a quote for repair costs. I’m yet to decide whether to repair it first.

    We put down a £2000 initial payment on the car, if I hand the car in without repairing and they deem the repair costs are in excess of £2000, would I have to get my wallet out and pay what they want or is £2000 the maximum the finance company can claim from me?

    Many Thank

  54. Hi Stuart,

    I have to decided to buy my next car outright and avoid PCP altogether. I have a £2000 initial deposit in my current PCP car and i understand if I continued with another PCP deal, the £2000 would transfer to the new deal as long the value of the PCP car was high enough. Would I still get this deposit back or transferred to a car that was bought outright?

    Thank you

  55. Stuart Masson

    Hi Chris. No, you’re mistaking how a PCP works. Your initial £2,000 is gone and you will not be getting it back.

    If you hand your car back to the finance company, any damage (over and above wear and tear) is chargeable to you – regardless of whether it costs £20 or £2,000.

    If you part-exchange the car on another one, regardless of whether you take another PCP and regardless of whether you go back to the same dealer or even the same brand, the dealer will pay off the finance settlement as part of the deal. If your car is worth more than the settlement, you get the difference (equity) to put towards your new car. If your car is worth less than the settlement amount, you would either give it back to the finance company and pay for any damage costs, or you would pay the difference between the value and the settlement (negative equity).

  56. Hi Stuart,

    Settlement amount is also known as the GMFV, right? I’m probably a bit confused, but from what I have gathered, if the price of the car is less than the GMFV, then when my term ends I can just hand in the keys and walk away without paying any further costs? Or is this not the case for slightly damaged cars?

    Kind Regards

  57. Stuart Masson

    You are correct that the settlement figure at the end of the agreement is the GMFV. If the car’s value is less than that number, you can give it back. However, you will be charged for excess mileage, incomplete service history or damage beyond normal wear and tear. The first two points are pretty clear-cut, the third is very subjective so you may need to argue your case with the finance company as to what constitutes ‘damage’ and what is ‘normal wear and tear’.

  58. That’s very helpful information, thank you.

    I am 2 years into my 3 year pcp and have just done the 1st service with my local garage. Until I came onto this website yesterday, I had no idea servicing with my local garage as opposed to a approved dealership would affect the value when I returned the car.

    Anyway, as I am handing back the car in the 3rd year , would I need to do another service and MOT next year just before I hand it back? is that what is usually expected?

  59. Stuart Masson

    Servicing/MOT needs to be up-to-date on the day you hand it back. So if it’s not due, you don’t have to have it done. If it’s due the day before you give it back, you have to do it.

    If servicing and/or MOT are due in the last few weeks, you may be able to give the car back a bit early to dodge it. The finance company should be able to tell you the earliest date you can hand it back.

  60. Hi there – I’ve just taken out PCP and the garage offered me an insurance Policy, to run alongside my own, whereby if I wrote the car off this would cover the full costs of the car, however, I couldn’t afford this lump sum but it has left me wondering what would happen if the car was written off as I would no longer have the same car to hand back after the 3 years was up.


  61. Stuart Masson

    Hi Carole. They are talking about GAP insurance.

    If your car is written off, your car insurance will pay you the value of the vehicle as normal. You then pay off the finance company – if the finance settlement is more than your car is worth, you would have to pay up the difference yourself.

    The dealer wants you to take GAP insurance because they take a fat commission on it, not because they care about your welfare. If you like the idea of GAP insurance, there are usually much cheaper options online.

  62. Hi Stuart,
    I am currently on a PCP for a Kuga 3 years. I am completing 1 year very soon. I wasn’t looking for servicing on annual basis and the dealer promised to contact before 1 year to exchange to another car as we will have positive equity. I am now being told the car is in negative equity due to a new model coming up. Can I look for another manufacturer say BMW or Nissan on PCP as I do not want to waste another 2 years with this car plus servicing? What will this mean?

    Kind regards,

  63. Stuart Masson

    Hi Priya. It appears you have been somewhat misled by the car dealer. It’s almost impossible to have equity after one year on a three-year PCP, so I’m not surprised you have negative equity. You can change your car to any other manufacturer you like, but you will still have to clear the negative equity, so it will be an expensive process to change.

    All cars need servicing, so you are far better off spending hundreds on servicing your current car rather than many thousands on replacing it so you don’t have to service it.

  64. Yes, it looks like we were mislead indeed by the dealer. I understand now that its cheaper to keep this car and service it and think about exchange at the end of 3 years. Thank you Stuart!

  65. Hello Stuart,
    I’ve never had a PCP but I’m thinking of taking one out. I wonder if you could tell me if they are flexible, please. For instance, if i start with a low deposit and a high monthly payment, would I be able to make a lump payment of a couple of thousand pounds in a few months time? The idea would be to reduce the monthly payment when a savings account matures. The dealer says that PCPs are completely flexible . . . but would it all turn out to be different when I come to do it?
    Brian (Stamford)

  66. Stuart Masson

    Hi Brian. I would suggest calling the finance company directly, rather than relying upon the dealer’s advice. Some finance companies allow you to make additional payments with no charge, others don’t or have specific limits.

    If the finance company does allow it, it will usually mean reducing your monthly payment amount rather than shortening the term or reducing the GMFV at the end of the agreement.

  67. Hi Stuart,
    I have a PCP agreement with Mercedes which is a 4 year contract, I’m currently 2.5 years into this contract, however the car has been with Mercedes for the past 3 months due to a major fault. Mercedes have confirmed that they cannot confirm a target completion date and cant even confirm if it will be before Christmas. I’m at the point where I just want to end the lease. Are Mercedes breaching any contracts? I’m still paying £600 a month for the lease.


  68. Stuart Masson

    Hi Sarah. It’s unlikely that there is any connection between the dealer’s servicing/warranty issues and the car’s finance agreement, which is with a separate company. The finance agreement is merely a method for paying for the car; it has no impact on your servicing or warranty schedule or technical problems with the car as you are describing.

  69. Hi Stuart,
    I have read many of the posts above and it looks like i have landed myself in a rather tricky situation in regards to my PCP for a 62 plate VW CC, i hope you can advise me on my best options.
    In February 2017 my 4-year Lease comes to an end with Black horse, my final agreed resettlement figure is around 8K. Or I could return it if my mileage was under the agreed allowance of 46,000, and general wear and tear of the car etc.
    My issue is, I no longer have the 8k to pay the car off and the car now has 69,000 Miles on the clock and has a few dents in the sill due to a carpark kirb, plus kirbed alloys, scratches etc. probably around £1,200 plus worth of repair work required.
    The excess mileage charge is 0.25p combined with what they will charge for the damage I am probably looking at £9,000 worth of charges form black horse.
    I no longer have a good Credit score, so unlikely to get a loan for the 8k, due to a rather costly divorce etc.
    I now need to look at getting a replacement car, any thoughts and advice appreciated.

  70. Stuart Masson

    Hi James. You refer to your finance agreement as both a PCP and a lease; it will be one or the other and they are different things. If it’s a PCP, you may want to consider voluntary termination, but the finance company is still likely to come after you to pay for the damage to the vehicle.
    There are no easy options which will allow you to walk away without paying anything.

  71. Hi,
    I have a PCP plan taken out in Nov 2014, I have two years left, however I am now unemployed and can’t afford the payments, I don’t want to miss any and have a bad credit record, but it does ay on my agreement that Repossession Your Rights, that If I do not keep my side of the agreement but have paid at least one third which is £7,038.44 (which I have) they may not take back the goods against my wishes, and if they do, they would be required togged a court order!! So, does this mean I can keep the car without making any further payments if i was to contact them to explain my circumstances. Thank you Frances

  72. Stuart Masson

    Hi Frances. The repossession rules mean they can’t just turn up to your house and take the car, but they will certainly go to court to get an order to do so. And they will certainly drag your credit score down.

    If you have paid back half of the total amount payable, you may be able to voluntarily terminate your PCP and hand the car back with no penalty and no hit to your credit score. Or if you’re nearly there, you can pay enough to get over the 50% mark and give it back.

    Get in touch with the finance company ASAP and explain your position. Although there is no obligation for them to amend the terms to assist you, they may be able to offer some solution which works for you.

  73. Thanks Stuart, that helps, ill get on to them asap.

  74. How much of a deposit should I be looking to put down on a pcp for a car that is £38k?

  75. Stuart Masson

    Hi Amanda. The deposit amount will be flexible based on what suits your needs. There will be a maximum amount, which will be about 25-30% of the total amount. There may be a minimum amount, but sometimes not.

    Ultimately, you have to be comfortable with the amount of money you are paying now and the amount you are paying per month. Assume you will have nothing left at the end of the agreement, regardless of what the nice salesperson tells you.

  76. I was told that as long as you paid half the rentals of a PCP contract you could give the car back with no additional charges and it wouldn’t effect your credit rating. How does this effect your mileage charges?

  77. Stuart Masson

    Hi Paul. What you are referring to is called Voluntary Termination. It is not “half the rentals” of a PCP, but rather half of the Total Amount Payable, which is usually only reached in the last third of the term.
    The issue of excess mileage is disputed. If you are massively over, the finance company is likely to fight you hard. If you are only slightly over, they are more likely to avoid an argument.

  78. Hi Stuart

    Would like your opinion in regards to a new PCP with Mazda which I am currently looking at. About 10 months short of a 42 month PCP on my old Mazda and do have some equity in the car (having made a lump sum payment a while back leaving only the GFV or ‘final balloon payment’ outstanding). The new PCP is over 37 months (36 monthly payments followed by the final settlement payment) and is at 0% interest. Having read the previous posts and your comments on the little chance of getting much in the way of equity at the end of a PCP deal, I was just wondering what your thoughts are on the 0% PCP’s?

    Obviously with no interest to pay, I assume that there is a better chance of some equity at least (accepting that there is still a fair amount of deprecation) given that the total amount ‘financed’ over the period is the same as the OTR price less dealer contribution, less my initial payment (the so called ‘deposit’)? Basically, are 0% deals as good as they first appear?

    Secondly, I have looked at Mazda’s website and their finance example. The figures they quote for the same model are pretty much as given by the dealer today when I enquired, but interestingly they are based on an annual mileage of 9000, whereas my figures are quoted on 6000 miles per annum. I would have thought that, if the same finance company is used (Santander Consumer Finance) that the mileage figures should be fairly similar for the same car?

    Any advice you can offer on this is appreciated.


  79. Stuart Masson

    Hi Dave. 0% finance is always better than paying interest, as long as all the other T&Cs are acceptable to you as well.
    With regards to equity, it is a matter of what the finance company sets as the GMFV/balloon and what the car is actually worth once you get to that point. The interest doesn’t really come into it. Based on what you have said, you currently have equity in your current vehicle, which means it has held its value better than estimated at the beginning of the agreement. That may or may not apply to the next agreement, and will depend on what the finance company predicts the depreciation will be on the next car.
    The mileage used for example agreements on websites used to be 10,000 miles per year. However, in recent years many companies have started using lower mileages, as it increases the residual value after three years and therefore makes the payments lower. It’s a bit of a sneaky trick, as the mileage is usually in the small print and many people don’t realise it. When getting a formal quote for your car, make sure the term and mileage match what you’re looking for, as opposed to what the salesman or business manager want you to have.

  80. Hi

    I have PCP agreement for a car that I can only just afford afford. When I got the car my agreed mileage was 25k a year but I’ve since moved jobs and am now doing less than 10k a year. Iv seen questions about people doing more than they’ve agreed and having to pay more but is there any way I can contact the finance company or dealer and reduce my monthly payments based on the fact I’m doing less than half the amount of mileage now?

    Many thanks

  81. Stuart Masson

    Hi Mary. I’m afraid not – usually you can only increase your annual mileage, not decrease it. The reason for allowing an increase is that the GMFV will decrease with a higher mileage, so the finance company is reducing its risk. In your case, the mileage is decreasing and therefore the car’s final value should be higher – so there is less risk for the finance company.

  82. Hi Stuart,

    Loved reading your blog and all of these comments!
    I was wondering if you could help me please.

    I am currently coming to the end of my PCP contract with KIA where the final balloon payment is £3,506. I no longer want this car and have already gone to another car dealership and ordered a new car with them on personal hire. With quite a large initial payment (deposit) than i wanted (£1200) but the monthly payments are ok and i have fallen in love with the new car..

    The new dealership have said that they can take my KIA at the end of the agreement. Is this a good idea or shall i just hand the car back to KIA? It is in good condition and I am well below the mileage limit. If the new dealership take it, will i be able to lower the initial payment slightly?

    Any advise would be helpful.

    Many thanks,

  83. Hi

    We have a PCP agreement for 3 yrs with an annual mileage of 10k per year. We are just approaching the 2 years anniversary of the agreement and have just hit 30k mileage – a year early. We are not wanting to keep the car at the end of the 3 years or hand it back but would be looking to part exchange. Will we incur any costs at the end of the agreement next year when we trade in or will we simply have no equity to put to another car? Is it worth trying to trade the car in now as I’m presuming its worth today what the RFV will be this time next year? Any advice would be gratefully received.


  84. Stuart Masson

    Hi Sophia. It’s up to you how you dispose of the vehicle, as long as the finance is settled. If the new dealer wants to pay your more than £3,506 for the car, you are better off giving it to them. Kia won’t give you anything if you hand it back to them, and may charge you for any damage.
    If the dealer gives you more than £3,506, any additional amount can be used to put towards the initial payment on your next car. Alternatively, you should be able to reduce the initial payment if you are prepared to pay more per month instead.

  85. Stuart Masson

    Hi Helen. If you hand the car back to the finance company at the end of three years, you will definitely incur costs for excess mileage. If you part-exchange the car with a dealer (doesn’t matter if it’s the same brand or any other), it will depend entirely on what the dealer is prepared to pay you and what your settlement figure is. The dealer buys the car from you for £X, and then they settle the finance outstanding. Whatever’s left is yours to keep or use towards your next car. If their offer does not cover the settlement, you would have to pay the difference.

    It’s value today may or may not be more than the GMFV in a year’s time, but there’s no guarantee. All you can do is get a valuation on the car and find our from the finance company what your current settlement figure is. If you settle the finance in full (by part-exchanging the car, or selling it privately, and paying off the finance company), the mileage is irrelevant.

  86. Hi Stuart,

    Thank you for your reply.
    The new car dealer asked for the settlement figure of £3,506 and that’s what they are offering me for the car. So no extra or nothing in it for me. Deposit and monthly payments stay the same.
    Is it even worth giving it to the new dealer?
    The car only has a small chip in the door paintwork where someone has opened their car door onto mine but I think this will be within the fair wear and tear limits of KIA?
    What is my best option?

    Many thanks,

  87. Stuart Masson

    Will probably make no great difference either way then. Personally I’d part-ex it to the dealer, and that way if there are any nasty surprises that you’re unaware of, it’s not your problem.

  88. Hi Stuart, I am going travelling and my friend has asked if he can use my car whilst I am away. My car is owned on a PCP finance deal. What are the implications of this? Obviously he needs to be insured on the car but are there any other issues that i don’t know about?


  89. Stuart Masson

    Hi Duncan. It probably depends on how long you will be away – short holiday, probably fine. Two years, probably not.

    The main issue for finance companies is that you need to remain the main driver of the vehicle, and are not financing the car for someone else who is unable to get their own finance. For more information, have a read of our article about accommodation deals.

  90. Hello, Great article.. very useful.. finding this quite confusing..

    My father has recently deceased.. and has a Car contract for a toyota that he began in 2014.
    Do we have the right legally to terminate the contract without paying? and are they liable for whatever happens should the contract customer pass away?
    we don’t want the car, haven’t signed anything or given any of our payment details.. so technically the contract still lies with the deceased…
    got any advise stuart?


  91. Stuart Masson

    Hi Jas. The finance company will become a creditor in your father’s estate and can make a claim for whatever is owed like any other creditor. Depending on the type of finance, whoever is executor of the estate may be able to voluntarily terminate the agreement if 50% has been repaid (or you can pay the outstanding to bring it up to the 50% point).

  92. Hi – I am currently 31 months into a 48 months PCP deal with Black Horse, Once I reach month 36 I have paid back 50% of my agreement and I intend to VT. My annual mileage for the full term of the agreement was 6000 per year and no more than 41,200 on the clock at the end of the 4 year agreement . As I intend to end the agreement around 13/14 months early on month 36 will the mileage be pro rata? As the mileage will be under the max amount of 41,200 overall, I have read the terms and conditions and cant find any wording re pro rata only that I must not exceed the stated max mileage of 41,200. I will be handing back around 40,000 miles on clock so technically under the max amount however pro rata would be over by maybe 4000 miles or so.
    Any help would be appreciated there seems to be a lot of conflicting info on line re this not being enforceable although it would be asked of you, and also depending on which finance companies as well so history online is black horse do pursue but Barclays wouldn’t. Thanks in advance

  93. Stuart Masson

    Hi Karen. Excess mileage charges are hotly disputed, but the majority opinion appears to be that they are not enforceable. For more information, have a read of our article on voluntary termination.

  94. Hi Stuart.
    I am considering a new car on PCP. Will I be able to transfer a personalised number plate to the vehicle from the outset ? If manufacturer is relevant to the answer, I am considering a Jaguar.

  95. Stuart Masson

    Hi Mark. If the personalised plate is on an existing car, it needs to be removed from that first. This process can take up to six weeks (because the DVLA is glacial in its operations).

    If you have the plate but it is not attached to a car, you can arrange it to go on your new car from the outset. Talk to the dealership, as they should be familiar with the processes.

  96. Hi Stuart.
    Your article has been very helpful & iv taken some notes so thank you for that!
    My husband & I have had various Audi’s over the last 7 years on PCP, at the moment I am now working part time & we have a baby (who costs a lot more than expected!), we are struggling financially to meet our bills every month & have decided the car is a luxury we simply cannot afford any more. What are the chance’s of Audi allowing us out of our agreement with no penalty? We are currently 1 year into a 3 year term with no savings of our own. Have you any advice on what we can say to help our situation & hope they’ll be sympathetic towards us?

  97. Stuart Masson

    Hi Alana. I would say your chances are zero, regardless of what you say. I may be wrong, but it would probably be the first time in the history of car finance that a finance company has agreed to take a hefty loss on an agreement because they feel sympathetic towards a customer.

  98. Hi Stuart.
    Thank you for the article and the many responses to comments above.
    I recently visited an Audi showroom and was speaking to a friendly salesman about a brand new car. I said I was looking for a PCP, but did not want to go over a certain amount per month as it would have been almost one third of my monthly salary. I asked if it would be possible to make additional payments every so often (when bills are light and I can make the odd saving) to help lower the overall monthly payments. He said it’d be no problem.

    That didn’t sound right to me and I didn’t want to agree to anything until I could find out if that’s actually possible.

    If I were to agree to a PCP expecting to be able to make extra payments to lower the agreed monthly payment, would it have to be specifically added to the contract? or is there usually a facility for that kind of additional payment in the contracts?

  99. Stuart Masson

    Hi Lee. Different finance companies have different policies, and I would suggest you contact Audi Finance directly to ask them if they will allow additional payments or overpayments.

    If the finance company does allow overpayments on a PCP agreement, it usually reduces your subsequent monthly payment amount. It will not affect or reduce the balloon/GMFV amount, as that is a predicted value based on a certain point in time and a certain mileage. Sometimes there may be a charge for overpayments, but other finance companies won’t charge you anything.

  100. Stuart,
    Just brought a used approved from a dealer; my question is are they required to provide you with a multi point check to show the vehicle has been examined etc.

    Paul Bradley

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