Car funding methods
Personal Contract Purchase (PCP)
The UK’s most popular way to finance a new car. Low monthly payments, flexibility at the end — but with some important details to understand before you sign.
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What is PCP?
Personal Contract Purchase is a form of car finance where you pay a deposit, make fixed monthly payments over an agreed term — typically 2 to 4 years — and then face a choice at the end: hand the car back, pay a final lump sum to own it outright, or use any equity as a deposit on your next car.
The reason monthly payments are lower than Hire Purchase is that you’re only financing the depreciation of the car during the contract period — not its full value. The remainder is deferred to the end as a Guaranteed Minimum Future Value (GMFV), sometimes called the balloon payment.
PCP accounts for roughly four in five new car finance agreements on UK forecourts — it’s the dominant funding method. But popularity doesn’t mean it’s always the right choice. The structure is more complex than it appears, and understanding the total cost — not just the monthly payment — is essential.
Odigo Verve helps you compare PCP against all other funding options to make sure you’re choosing the right method for your circumstances, not just the one with the lowest headline monthly figure.
How PCP works
Four stages — from deposit to decision.
Interactive cost explorer
See how the numbers work for your situation
Adjust the sliders to match your circumstances. The chart shows the car depreciating in real time against what you still owe — and what your choices are at the end.
Car value
Balance owed
Balloon (GMFV)
Illustrative figures only. The calculations above are based on the inputs you provide and use estimated depreciation rates based on UK market averages. They are intended for general educational purposes only and do not constitute a regulated credit illustration, a personal recommendation, or an offer of finance. Actual monthly payments, interest charges, and balloon payments will vary depending on your credit profile, the lender, the specific vehicle, and the terms of any agreement. Always obtain a formal written quotation from an FCA-authorised lender before entering into any finance agreement.
Your three options at the end
Understanding these choices before you sign is as important as understanding the monthly payment.
The pros and cons
Advantages
- Lower monthly payments than HP or a personal loan for the same car
- Flexibility at the end — you’re not committed to owning the car
- Manufacturer-subsidised rates can make it very competitive on new models
- Access to newer, better-specified cars for a given monthly budget
- Section 75 Consumer Credit Act protection applies
- Voluntary termination rights after paying 50% of the total amount payable
Disadvantages
- You don’t own the car during the agreement — the finance company does
- Mileage limits can be restrictive and excess charges add up
- The total cost of credit is often higher than it appears from the monthly payment alone
- Balloon payment can be a shock — especially if the car’s market value has fallen
- Condition charges at return can catch drivers out
- Rolling into a new PCP keeps you in a permanent payment cycle with nothing to show
Who PCP works best for
PCP isn’t right for everyone — here’s an honest assessment.
PCP is designed for drivers who want a new car regularly without committing to ownership.
Staying within the agreed limit avoids excess charges and keeps total costs predictable.
Lower monthly payments make a higher-spec car accessible that HP might not.
0–3.9% APR deals on new models can make PCP genuinely hard to beat.
HP or a personal loan will almost always be cheaper overall if you plan to keep the car.
Excess mileage charges can significantly increase the true cost of a PCP agreement.
The Odigo Verve view
PCP can be excellent — in the right circumstances
The problem isn’t PCP itself — it’s that dealers and finance providers have every incentive to put you in a PCP agreement regardless of whether it suits you. The low monthly payment is the hook; the total cost, the mileage limits, and the balloon payment are the detail most people don’t read until it’s too late.
We’ll help you compare PCP against every other option — including salary sacrifice if you’re eligible, HP, personal loans, and cash — so you can make a decision based on total cost and suitability, not just the headline monthly figure.