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Car finance advice

How to understand a PCP car finance quote

Don't let a car dealer rip you off with a costly PCP finance agreement. We explain exactly what to look out for so you can get the best deal.

We get a lot of readers asking questions or looking for explanations about a personal contract purchase (PCP) quote they have received from a dealer or seen online. This is not surprising, as a PCP car finance quotation can look quite confusing.

In this article, we are going to go through a PCP car finance quote line by line, and explain what each item means. We will tell you what to look out for, and what you can do to adjust each number to suit your needs. If you can understand every aspect of the quote, you are much likely to get yourself a deal that works for you rather than a deal that works for the car dealer.

When looking at a car finance quote, take your time and work through it line by line as we will do below. Refer back to this document as you are reading your quote to help you understand it. Don’t just accept whatever the car dealer tells you; you need to take responsibility for making sure the finance offer meets your needs.

Look beyond the monthly payment

Most buyers tend to focus on one line – the monthly payment figure. They will have a target of £X per month, and that’s all they are interested in. However, every aspect of a finance quotation is connected, so if you are trying to reduce a monthly payment quote to get it down to your target, that will inevitably mean you have to compromise somewhere else. Tweaking one line of the quote will always affect several other lines, and you may end up worse off as a result.

PCP car finance quotation salesman
Don’t be distracted by the shiny things; focus on your financial limits.

For this article, I have taken a genuine PCP car finance quotation from a large manufacturer finance company on one of the best-selling cars in the UK. However, everything you read below will apply to any PCP car finance quotation.

The reason we are using a PCP quotation is because it is by far the most popular type of car finance for retail car buyers in the UK. More than 80% of all private new car buyers will use a PCP to buy their vehicle, and a rapidly growing number of used car buyers as well.

If you want even more information about any of the technical jargon used in this article, check out our comprehensive car finance glossary that explains everything in plain English.

PCP car finance quote example*

Duration48 months
Monthly payment£275.42
Customer deposit£3,000.00
Deposit contribution£1,250.00
Retail cash price£23,900.00
Acceptance fee£0.00
Optional final payment£9,804.60
Option to purchase fee£10.00
Total amount payable£27,009.34
Total amount of credit£19,650.00
Representative APR %5.4% APR
Rate of interest5.34% fixed
Annual mileage allowance10,000
Excess mileage (per mile)6p

*example is an actual finance quotation taken for a popular new car in the UK, as advertised in June 2020

1. Duration

The duration is also called the term. In this case, the 48 months shown actually consists of 47 regular monthly payments plus one large final payment, also called the balloon or guaranteed (minimum) future value (GFV/GMFV).

A PCP car finance agreement can usually run for anywhere between 18 months and 48 months. A longer duration will usually mean lower monthly payments, but the overall amount you end up paying will be higher as you will pay more in interest since you are borrowing the money over a longer period.

Be very cautious of anyone trying to offer you a PCP longer than 48 months, as it rarely works out to your advantage.

If you want to make the duration shorter, you can:

  • increase your upfront deposit
  • increase your monthly payment
  • choose a cheaper car

2. Monthly payment

This is the number that most buyers are looking at – how much will this car cost per month? However, it’s only one part of the equation, and you have to make sure that every other aspect suits your needs.

The question of “How do I bring my monthly payments down?” is very common but there’s no magic here answer. Reducing the monthly payment will require you to accept a less-desirable change somewhere else, and concentrating only on the monthly payment can lead you into trouble.

If you want to bring this payment down, you can:

  • choose a cheaper car
  • increase your upfront deposit
  • reduce your annual mileage
  • take a longer term (max. is usually 48 months; see above)
  • negotiate a discount on the price of the car
  • negotiate a discount on the interest rate on the finance

3. Customer deposit

This is the amount you are paying the dealership up front, which is taken into account as part of your overall PCP car finance agreement. The word “deposit” can be confusing; you won’t get this money back again at the end of the agreement. The more money you put in at the start, the less you will have to pay per month. Conversely, the less you put in to start off, the more you will have to pay each month.

If you want to bring this payment down, you can:

  • choose a cheaper car
  • increase your monthly payment
  • reduce your annual mileage
  • take a longer term
  • negotiate a discount on the price of the car
  • negotiate a discount on the interest rate on the finance

Car dealers will often encourage you to put in less deposit and increase your monthly payment, and a common phrase they will use is “dead money”. Don’t be fooled; they’re saying this because it suits them. They get commission on every pound that you borrow, so if you reduce your deposit by £1,000 you will be increasing your debt by £1,000 and they will get more commission. Do what is right for you.

Part-exchange vehicle
If you have a part-exchange vehicle, that can be used as a form of deposit. If the dealer values your car at £2,000 then that’s the same as a £2,000 cash deposit. If you have outstanding finance on your vehicle, it’s value will be the net result of its value minus the finance. So if your car is valued at £8,000 but you still owe £7,000 to the finance company, it’s only a £1,000 deposit.

If your car is valued at £8,000 but you still owe £9,000, that’s called negative equity and it means you have to pay £1,000 to get rid of your car before you can start thinking about additional deposit towards your new car.

4. Deposit contribution

A deposit contribution is basically a discount for taking the finance agreement; in the example above, it’s £1,250. Instead of taking £1,250 off the price of the car, the dealer is giving you £1,250 towards the price of the car. It’s kind of the same thing, but it can have advantages if you need to voluntarily terminate the agreement later on.

This amount is usually offered as part of a national campaign on a particular model, and is available from any dealership for that manufacturer. It’s a discount/offer, so it won’t be available on any model. It’s much less common to see a deposit contribution offered on a used car.

Dealers will often offer to use this deposit contribution to cover any negative equity you have in your current car (see above), so you don’t have to find the cash to settle the outstanding finance. This means that there will be little or no contribution left towards the new car, so you are making your new car more expensive by doing this.

5. Retail cash price

This may be listed as total on-road price or something similar. It’s basically the overall price of the car, including any extras you have added and other costs like road tax.

If you want to bring this payment down, you can:

  • choose a cheaper car
  • remove unnecessary extras like GAP insurance or paint protection (the dealer will hate that, but that’s because they make a lot of commission on those extras)
  • negotiate a discount on the price of the car
  • negotiate a discount on the interest rate on the finance

6. Acceptance fee

This will vary between different finance providers, and may or may not be relevant. Almost all PCP car finance contracts will have fees of some sort (unless they specifically say 0% APR). In this particular case, there is no fee here – however some finance companies may try to charge you as much as £100.

7. Optional final payment

This is the amount you will still owe at the end of the duration, also known as the balloon. In a PCP agreement, this amount is the same as the guaranteed future value (which is technically a different thing, but for a finance quote it doesn’t matter). If you want to pay off the finance and keep the car, this is how much you will have to pay.

This amount is what the finance company expects the car to be worth at the end of the agreement. So in this case, the car starts out at £23,900.00 new, and after four year and 40,000 miles it should be worth £9,804.60. That’s 41% of the starting price, which is pretty high for a four-year old car.

The higher this payment is, the lower your monthly payments will be. If you want to keep this payment as high as possible to reduce your monthly payments (which is likely if you’re not planning to make the final payment and keep the car), you can:

  • reduce your annual mileage allowance
  • remove any unnecessary options (like a sunroof or upgraded stereo) and dealer extras (like GAP insurance or paint protection) that increase your starting price but don’t increase the final value
  • stick with the most popular colour and trim combinations (unpopular colours and personalisations can devalue your car)

The finance company will try to take this payment on direct debit unless you hand the car back or part-exchange it before the due date. For more information, have a read of our article about your options at the end of a PCP.

8. Option to purchase fee

Again, every finance company will charge fees here or there. In this example, if you choose to pay the £9,804.60 to keep the car at the end of the agreement, you will also have to pay an extra £10 admin fee. Yes, you’re right – it does seem petty.

9. Total Amount Payable

This is an important number, as it reflects the cost of the car plus the interest and fees you pay as part of the finance. Based on the example above, this amount equals your deposit (£3,000.00), the seller’s deposit contribution (£1,250), 47 monthly payments of £275.42 each, the final payment of £9,804.60 and the final £10 fee.

Even if you don’t plan to keep the car, this is still an important number as it shows you how much you are really paying to finance the car. In this case, the Total Amount Payable of £27,009.34 minus the cash price of the car (£23,900.00) means you are paying £3,109.34 in interest and fees to finance the car over four years.

If you want to bring this payment down, you can:

  • choose a cheaper car
  • take a shorter term (thereby paying less interest)
  • remove unnecessary extras like GAP insurance or paint protection
  • negotiate a discount on the price of the car
  • negotiate a discount on the interest rate on the finance
  • find a finance agreement with a lower APR (interest rate)

What the quote is not required to show is your total debt, which is the amount you ultimately owe the finance company. It is the total amount payable minus your deposit and any deposit contribution. In this case, the debt would be £22,759.34.

A significant amount of debt may affect your ability to borrow money for a house or get credit for other purposes (credit card, phone, personal loan, etc.). Obviously you will make inroads to this debt each month with your repayments so your debt will change each month.

If you settle the finance early, it will reduce the overall debt because you’re borrowing the money over a shorter term.

Voluntary termination
Another reason that the total amount payable is important is because it is used to calculate your voluntary termination point, which is 50% of the total amount payable – in this case, £13,504.67.

Based on the deposit (£3,000.00) plus deposit contribution (£1,250) and monthly payments of £275.42, you would reach this 50% mark after 34 months in this example contract.

For more information, check out our guide to voluntary termination of a PCP or HP.

Your repossession rights are also determined by the total amount payable. If you have repaid less than a third of the total (in this case, £9,003.11, which you would reach in about 18 months) and you default on your payments, the finance company has the right to repossess the vehicle.

Once you have repaid more than a third of the total amount payable, they would have to get a court order to repossess the vehicle. In practice, that means they may be a little more patient with you before going to the effort of trying to repossess your car, as going to court costs money with no guarantee that they would win.

10. Total amount of credit

This is the amount of money you are borrowing, and is equal to the price of the car (£23,900) minus your deposit (£3,000.00) and the deposit contribution (£1,250).

It’s a common misconception that you’re not borrowing the balloon amount – not true at all. You are borrowing that £9,804.60 and paying interest on it, but you are not repaying it unless you decide to make the final payment at the end of the agreement.

If you want to bring this amount down, you can:

  • choose a cheaper car
  • increase your up-front deposit
  • negotiate a discount on the price of the car
  • negotiate a discount on the interest rate on the finance
  • find a finance agreement with a lower APR

11. Representative APR

APR stands for Annual Percentage Rate, and includes all the interest and fees you have to pay on the finance agreement. It is essentially the cost of taking out finance, and obviously a lower number is better than a higher number.

If you are looking at a finance quote that has been prepared specifically for you rather than an advertised example, it may simply say “APR” rather than “Representative APR”.

A Representative APR is the rate that at least 51% of applicants must be offered, but you may not be offered this rate. The Representative APR in this example is 5.4%, but you may only be offered a higher rate (say, 7.5%)  if the finance company thinks you are a higher-risk customer.

If you want to bring this amount down, you can:

12. Rate of interest

APR includes both interest AND fees; this bit is the interest component. In this example, the interest rate is 5.34% but the APR is only 5.4%, which means that there are very few fees that only make up 0.06% of your cost of borrowing.

This can be important because interest and fees are different. Interest is spread across your monthly payments, whereas a fee is charged in one hit. For any given APR, it’s usually better to be paying more in interest and less in fees.

Negotiate a better rate
If you are buying a car as part of an advertised campaign offer, there may not be any additional room for negotiation on the interest rate. However, in any other case (and especially on a used car), there is normally an opportunity to negotiate a percentage point or two off the interest rate.

If you can save 1% on your interest rate, that might be a much better result than haggling over a few hundred pounds off the price of the car.

13. Annual mileage allowance

For too long, this number has been buried in the fine print. It should be up there with all the other information, like it is in our example above – especially if you are looking at a specific finance quote prepared for you rather than an advertised example.

This number should reflect the number of miles you expect to do each year – the national average is about 10,000, which is what the example above shows. However, many dealers and finance companies are now quoting customers on much lower mileage figures (often 6,000 per year) unless you specifically nominate a higher mileage.

Why do they do this? Well, a lower annual mileage will make your final payment higher, which will reduce your monthly payments and/or your up-front deposit. The problem is that if you go over your mileage allowance, the finance company will charge you an excess mileage penalty (see below).

Make sure your mileage allowance reflects your driving requirements, and be realistic about it rather than optimistic.

14. Excess mileage

This is what the finance company will charge you for every mile you go over your allowance for the term of the agreement. It only applies if you are giving the car back to the finance company at the end of the agreement and claiming the guaranteed future value. For more information, have a read of our article about your options at the end of your PCP agreement.

This example is a 48-month (four-year) PCP with an annual mileage allowance of 10,000 miles, which means the total mileage allowance over the entire agreement would be 40,000 miles.

The excess mileage penalty fee in this example is 6p per mile, which works out to £60 for every 1,000 miles that you exceed your allowance. That’s actually quite low, but will still be more than you’d pay if you set the mileage correctly in the first place.


Ultimately, there’s no such thing as a perfect finance quote. As you can see above, a number of the variables above can be adjusted to suit your particular needs.

For example, if you increase your deposit then you pay less per month. That might suit you but may not suit another buyer, who may not have the cash available and would therefore prefer to pay a bit more per month in order to pay less up front.

Likewise, one buyer may prefer to wear a higher monthly payment in order to have a three-year PCP, while another buyer may prefer a lower payment over four years.

You need to work out what suits your financial circumstances, and don’t be charmed or bullied by a dealer who wants you to borrow more money or put in less deposit – they are doing this because it suits them, not because they’re trying to help you.

customer signing PCP car finance contract
Have you followed The Car Expert’s advice? Good, you can sign that contract now.

This post was originally published in June 2018. Last updated June 2020.

PCP car finance agreements in the UK are regulated by the Financial Conduct Authority, and anyone involved in the selling of car finance must be accredited by the FCA. You should always consider the terms and conditions of any agreement carefully before taking out any form of car finance, as you are making a substantial ongoing commitment and there may be significant costs if you change your mind or are unable to meet your commitments at a later date.

Stuart Masson
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. Hi Stuart,
    If the payments are affordable, would it better to set up a PCP with a higher mileage (than I expect to do) to bring down the GMFV?
    I’m thinking this would hopefully mean that at the end of the PCP, the car is more likely to be in a better PX position / positive equity.
    Or am I effectively paying for that positive equity via the higher payments?
    E.g. mileage set at 8000, monthly payment = £260 & GMFV £10150 after 4 years (47 payments)
    or mileage set at 14000, monthly payment = £282 & GMFV £9002
    from my calculations the difference between the total paid after 47 payments = £1034 & the difference between the GMFVs is £1148, so the GMFV goes down by £114 more than I’ll have paid out…is it worth it?

  2. Hi Stuart, I bought used approved car from SEAT dealership. What is not clear to me is whether I am Ok to get the maintenance of the car like brake pads / discs, wipers, types etc changed from my local garage (like Halfords/Kwik Fit) instead of seat dealership? I don’t want to invalidate warrantee as I intend the return the car at the end of PCP.

    Please advise.

  3. Hi,I recently entered a PCP contract. The car is a Mercedes C-Class and is 3 years old and had done 10,500 miles.

    It was for sale for £23,000. I put £2000 down as a deposit and had to wait for them to MOT and refurb the alloys before they would deliver the car as this is their inspection policy. I was more than happy to wait for this to be completed.

    After having the car for only 3 weeks, the service indicator on the display suggests that the car needs an A4 service immediately. I was shocked that a car of this age and value had been sold to me without having been serviced when m.o.t’d. Also I understand that I will jeopardise my GFV if I don’t use a main dealer for this service and it costs £750 and I’ve only just got the car.

    Please does anyone know if I have a case legally here or I’ve just been shafted. Any advice much appreciated.
    Kind regards,

    • Hi Stuart. There is no legal requirement for a dealer to service a used car before selling it. The MOT roadworthiness test is a legal requirement and obviously has to be valid.

      If you bought it from a Mercedes-Benz dealer, you may have recourse under their Approved Used Car scheme, but otherwise it’s the sort of thing that a buyer should check before signing a contract.

  4. This is the best article which I have ever read on this topic. I got all the information after reading this article that makes me so happy and satisfied. I just want to ask a single question i.e. can I get car finance without a guarantor?

  5. Do I have to take the car back to the dealer I got it from on PCP or can I go to another dealer who also does PCP deals i.e car came from Renault but I’ve seen a car at JCT 600. Can I swap my car’s PCP deal and use JCT 600 to get another car on PCP? kind regards julie

    • Hi Julie. No, you can go to another dealer and another brand if you want to. The dealer where you are buying your next car (ie – JCT 600 in your case) will help you settle your PCP with your previous dealer.

What are your thoughts? Let us know below.

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