What is Personal Contract Purchase (PCP) Finance?

Personal Contract Purchase (PCP) is a type of car finance, which requires an initial deposit, followed by monthly payments to be made over an agreed period of time. After the contract duration is over - which is usually between 2 and 4 years - you can either take the car back to the dealer or keep the car as your own by paying a large final sum. This is often referred to as a 'balloon' payment.

PCP is different from HP (Hire Purchase) because the car only legally becomes your own if you decide to pay a final payment which is part of the car's value. With HP the car will become yours at the end of the agreement. The amount you will pay per month is dependent on the deposit you put down, how long you'd like the motor for and how many miles you will be driving.

If you are returning the car, it is highly recommended that you keep it in the best condition possible as you may find that you will be charged if there are issues with it. The dealer could, for example, demand refurbishment fees for damages, although they can only demand what is deemed acceptable by the British Vehicle Ventral and Leasing Association (BVRLA). These guidelines should be made available to you by the dealer or finance company.

If you wish to buy the car outright, you will have to pay the amount agreed upon by the finance provider. Ensure that you do your research before-hand to ensure that you know every detail of the finance deal so that you do not incur any nasty surprises. If you keep the motor in good nick and abide by your mileage allowance, PCP can be a great finance option.