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Car finance: Top 10 PCP myths busted

Millions of UK car buyers fundamentally misunderstand how PCP car finance works. Here we shatter ten of the biggest myths.

The personal contract purchase (PCP) is by far the most popular way for consumers to buy new cars, and is rapidly becoming the most popular way to finance used cars as well.

But the PCP is really not well understood. Repeated research, like this study from 2015 and this one from 2017, has shown that most car buyers don’t understand how PCPs work and are often basing their assumptions on various myths and misconceptions.

Based on the thousands of questions about PCP finance from readers we have received here over the last few years, we have come up with our Top 10 PCP myths – and then busted them. Remember kids, never trust the smiling sales executive or your best friend’s neighbour’s uncle. Trust The Car Expert.

New car showroom - SEAT in Derby - offering PCP car finance

PCP Myth #1: You’re not really buying the car

There is still a misconception that PCP car finance is a lease or rental, rather than a purchase. This is simply not true, even if most buyers tend to treat it like a lease. It’s also a really important point .

A PCP is a form of hire purchase (HP), so you are buying the car over time. It doesn’t officially become your property until the last penny is paid off, just like a classic hire purchase or the mortgage on your house, but you are making payments towards eventual ownership unless you choose not to make the final payment.

It is estimated that fewer than 20% of PCP customers will ever make that final payment, with the vast majority choosing to hand the car back or part-exchange it instead. But the default option in your contract is always to make the final payment, so you are forced to take action to stop that from happening.

For more information, check this out:

PCP Myth #2: You’ll have equity at the end of the agreement

PCP finance is usually sold on the vague verbal promise of equity at the end of the agreement. The idea is that your car will be worth more than the final balloon/guaranteed future value (GFV) amount, and the leftover is what you use as all or part of the deposit towards your next car.

For many car buyers, that certainly used to be the case. However, these days you will be lucky if your car is worth the balloon amount at the end of your agreement, meaning that you won’t have any equity and therefore you will have to come up your next deposit from your own savings.

For some reason, buyers tend to forget that they handed over a couple of thousand pounds for their deposit three years ago, and are now being asked to find another couple of thousand pounds to hand over for their next PCP.

For more information, check this out:

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Here at The Car Expert, we are building commercial partnerships with companies who can offer you competitive PCP deals on either a new or used car (as well as other types of finance if you prefer). Check these out before signing any finance agreement with a car dealer:

  • We Finance Any Car can arrange PCP or HP finance at competitive rates
  • FairSquare can find and finance either a new or used car, and deliver it to your door

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Looking for an alternative to dealer finance? Our commercial partners can offer you a great deal.

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Stuart Massonhttps://www.thecarexpert.co.uk/
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive 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. If you put down a large deposit and you total the car, you won’t get all that money back, even with gap insurance. Paying a little bit more in interest seems less riskier than paying a big deposit hoping nothing happens over the next 2-4 years.

    • If your car is written off, you will get the same insurance payout regardless of how much you owe (or don’t owe) to the finance company. If you have little to no deposit, chances are you will have significant negative equity so you will have to pay money to the finance company over and above your insurance cheque (unless you have GAP to cover that). But if you paid a larger deposit, it just means that you get more money back and the finance company gets less. You should be no worse off and potentially better off.

  2. I have never missed a pcp payment of £400 a month with a leading car dealership , I took a 3 month holiday break then another 3 months but have since lost my job , after 14 yrs plus lost my appeal a few weeks ago my current holiday break is due to end this month but I’m currently unemployed. There is no way I can make a payment my current monthly benefit doesn’t cover a payment, if I ring them what are my options please I was in about £2,000 negative equity before the holiday breaks so only had 4 or 5 payments to pay before I could change or give car back . Help please does anyone where I stand legally.

    • Hi Chris,

      Really sorry to hear about your position. As I understand it, depending on your PCP agreement, there is a caveat for Voluntary Termination which occurs normally when you have repaid at least 50% of the total cost of the vehicle (any deposits made, monthly repayments etc). It isn’t necessarily exactly half way though an agreement as it depends on variable such as the amount of deposit you put on the car etc.

      It is worth checking your PCP paperwork, and also talking with Citizens Advice, IFA’s etc. I’m not qualified in these areas but as far as I know, whilst the finance companies don’t like it happening, you have a legal right to do so and it doesn’t affect your credit rating (but certain finance companies may be reluctant to take on a new agreement with you in the future if you have VT’d a car with them).

      Sorry if this advice is too late (have only just stumbled across the website). Wish you all the very best and hope you have managed to navigate around the issue and that you’re back in employment.


  3. Hi Stuart, thanks for the reply. I have heard they give you the absolute minimum of what they think the GMFV will be so chances are you will have equity to put towards the car for your next pcp deal , correct?

    • That certainly used to be the case, but not so much anymore. GFVs have been creeping up (being artificially propped up by manufacturer finance companies to help keep monthly payments down), while used car values have been coming down. The combined result of these two factors is that most customers are now finding they have little to no equity at the end of their PCP agreements, whereas previously they had a useful amount to put towards their next car. We explored this a few months ago in this article about falling new car sales.

  4. Im thinking of doing PCP on a car worth 36000, with the deposit at 8000 and 36 monthly repayments of 450. When that ends after 3 years and I decide to trade it in for a new one, Will I have to put 8k down as a deposit again to keep my payments at 450 a month?

    • Hi Rob. Assuming you don’t have any equity in the agreement, the same car price/spec/mileage/residual value and the same finance APR and term, then yes.

      In reality, your next car won’t be exactly the same and the finance agreement won’t be exactly the same. But in principle, yes.

      For more information, have a read of our guide to PCP car finance.

What are your thoughts? Let us know below.