Comparing a lease with a PCP

The majority of new cars in the uk are either leased or financed via personal contract purchase (or pcp as it is commonly known). The reason for their popularity is that both effectively allow you to drive a new or nearly new car without having to fund capital depreciation in your monthly payments.

Personal Contract Purchase (PCP)



MRP or forecourt price
MRP or forecourt price
Dealer discount or contribution
  Processing fee
Quoted lease processing fee
Your deposit or value of trade-in
Deposit or up front payment
Loan amount   Net value
Monthly Payments   Monthly Payments
Quoted monthly lease payments
Final payment (GMFV)
Balloon or guaranteed minimum future value
Interest rate (APR)
Quoted APR %
Loan months
Term in months
  Lease months
Term in months
Total interest payable      
Total payable 
Total payable over full contract
  Total Payable
Total payable over full contract

signing car contract

Comparing a lease with a pcp

A lease is a rental agreement and a PCP a finance agreement. They both offer an affordable way to drive a new car.

It is difficult to compare the two for one simple reason. To understand the value of a PCP you need to predict the value of the car at the end of the contract. And because predicting the future value of anything is subject to speculation it makes it very difficult to compare these two products side by side. A PCP is designed to provide some equity of the end of the contract to fund a deposit on your next purchase.

However, we at like a challenge and we believe that it is very important to at least test the integrity of the PCP. An integral element of a PCP is what is known as a balloon payment or Guaranteed Minimum Future Value (GMFV) which the finance provider will include on their quotation. This is the price you will have to pay for the car at the end of the contract if you wish to own it or to realise the equity as a down payment on a new car.

The balloon payment (GMFV) is where the value lies in a well-structured PCP and where you can easily become unstuck if you are not very careful. An unscrupulous dealer /finance provider could tempt you in with a very low interest rate but leave the balloon so high that at the end of the contract you have no equity left in the car.

So in order to compare the value of a PCP against a lease you will need to predict the value of the equity which will accrue during the PCP contract. As a guide you can use our Depreciation Calculator which will help you understand the value in the PCP and compare it to the value of a lease.

Otherwise you may like to consult Parker’s Guide which will give you an idea of the car’s value at the end of it’s contract.

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