Personal Contract Purchase (PCP)

Personal Contract Purchase (PCP) is the most common form of personal car finance in the UK today because it provides a mechanism to postpone paying for a substantial proportion of the vehicle until the end of the contract and allows you to drive a better /newer car than you could otherwise afford.

PCP Calculator

MRP or forecourt price
Dealer contribution or discount
Your deposit or trade in value
Loan amount
Final payment (GMFV)
Balloon or GMFV as per quotation
Interest rate (APR)
Annual interest rate as per quotation
Loan term (months)
Loan term months (11-60)
Total capital payable
Total interest payable
Total payable
Monthly repayments
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The cynic may suggest also, that the PCP suits the motor trade as the balloon payment (GMFV) offers a convenient means to muddy the water.

Let’s explain why, because it’s important to understand if you want to negotiate a good deal on a PCP. With a normal loan (HP or car loan) what you pay is pretty transparent: you may have a small administration fee added to the loan but essentially the interest rate (APR%) you are quoted is the price you pay for the money lent and you can easily compare different lenders according to their rates.

The spanner in the works for a PCP is the balloon payment (or GMFV) which is the price you will have to pay for the vehicle to own it at the termination of the contract. It may seem a long way off and the temptation to sign on the dotted line strong but beware! You may be quoted a very reasonable interest rate but if the balloon payment is too high you could get a nasty surprise. Rather than having a lump sum as a deposit to use on your next car you may find you are left with nothing.

To get to grips with this conundrum you need to find a way to test the integrity of the balloon payment. In other words, you must be sure that the balloon payment has not been ramped-up so that when the agreement expires you are left with a car worth less that the final payment.

This can be done by using our depreciation calculator and future value predictor which will give you a guide to the value of your vehicle at a point of your choosing in the future. If our calculators show low or negative equity, you may well be advised to look more closely.

Instruction - This calculator can be used to understand the relationship between the price of the vehicle, the interest rate, the balloon payment (GMFV) and your monthly repayments. Use it to work out what you can afford and negotiate a better deal. Remember, the lower the GMFV, the higher your monthly payments.

car graph
Now, by working with the PCP calculators above you will see that raising the balloon payment will decrease your monthly payments but remember all this will achieve is postponing the date of payment to the end of the contract. You will also notice that the price of the car and the interest rate are the most important factors in determining how much you will pay overall, so shop around for the best value vehicle and haggle hard on interest rates.

You may have read that one of the options at the end of a PCP is to hand the vehicle back to the dealer. Although this is technically true, if this is the best option you have I would be asking questions of the dealer (or finance provider) as a PCP should provide some equity for you next purchase.

For more advice about PCPs’ and other finance options click here.

Interest Rate (Monthly)     Balance   Month Interest Paid Principle Paid Total Payment Cumulative Interest