The Advantages and Disadvantages of PCP Car Finance

Before financing a car, it’s important to know which car finance product is most suitable to your budget, needs, and preferences. 🤔 If you’re looking for a type of car finance where you’ll have flexible options on what to do with the car at the end of your agreement, Personal Contract Purchase might be the right one for you. Let’s look at the advantages and disadvantages of PCP car finance to help you decide. 

What’s PCP Car Finance?

Before we dive into the pros and cons of PCP car finance, let’s first explore what it means and how it works. PCP stands for Personal Contract Purchase and it’s a type of car finance that’s popular among UK drivers. It works almost the same way as Hire Purchase because you’d have to put down a deposit first and then make payments every month throughout the duration of your car finance agreement. 

The main difference between PCP and HP is that when you finish making payments in an HP deal, the car is automatically yours. This is why HP payments are higher compared to PCP. With PCP, you would have to pay the final balloon payment before the ownership of the vehicle can be transferred to you. You also have the option to simply return the car if you don’t want to pay the balloon payment or use its remaining equity as a deposit for a new car.  

Is PCP Car Finance Any Good?

Now that we know how PCP works, let’s take a look at the main advantages of getting this type of car finance. 

Upgrade Your Car Every Few Years

Most PCP car finance contracts last for two to four years. Many car finance companies offer drivers the option to get a new PCP contract after they make the last payment. If you want to upgrade your car every couple of years, this is a hassle-free way to do it. 

Cheaper Monthly Payments

As mentioned previously, the monthly repayment amount for PCP is lower compared to HP because your payments go toward the predicted depreciation of the car and not its full price. If you’re not keen on owning a car or only need a vehicle for a few years, PCP is an affordable way to enjoy the freedom of having your own set of wheels. You might want to check out the amount of the monthly repayments using a PCP car finance calculator.

Smaller Deposits

Apart from cheaper monthly payments, PCP deals often require a lower deposit than HP. There are even car finance companies that offer zero-deposit deals. Be sure to check if the car finance company has a PCP car finance calculator available on their website. Use it so you can get an estimate of the cost of financing a car with PCP. 

Flexible Options After the Contract Ends

One of the key advantages of a PCP deal is its flexibility. If you want to own the car, you only have to pay the balloon payment at the end of your agreement. In case you’re not keen on owning the vehicle, you can simply return it to the car finance company and walk away. Lastly, if you wish to drive a new model, then use the remaining equity of your current car as a deposit for the new car. 

The Loan is Secured Against the Car

Many drivers prefer PCP car finance because the loan is secured against the car. What this means is that you don’t need to use any of your assets such as your property or cash investments so you can loan money to drive the car you want. Just see to it that you make payments on time every time so as not to risk getting the car repossessed by the car finance company. 

Disadvantages of PCP Car Finance

Annual Mileage Limit

It’s typical for a PCP contract to state an annual mileage limit on the car. It’s because the vehicle’s mileage affects its value greatly. If you go over the limit, expect to pay penalty charges when your contract ends. This can be expensive so be sure to stick to the agreed annual mileage limit. Better yet, give yourself some allowance when determining your expected mileage at the start of your contract. 

Fair Wear and Tear

When your PCP car finance agreement is finished, the lender will assess the condition of the vehicle. If they find that there is any damage beyond the usual wear and tear, they can charge you with corresponding penalties. So, even if the car is not yours, you still have to take good care of the vehicle throughout the time you’re using it. 

Car Finance PCP Comparison

How do you find the best PCP car finance deals? You might already be shopping around for the most suitable PCP deals and it’s most likely that you’re looking at the interest rates that lenders offer. However, it would be better to check their annual percentage rates or APRs. The APR includes the interest rate as well as other fees and charges. You’ll be able to compare various deals better if you look at the APR instead of just the interest rates. 

Another thing about APRs is that lenders advertise what is called representative APR. It means the actual rate that they’ll apply to your loan might not be the same figure. The actual car finance interest rate depends on a number of factors such as your credit score, loan amount, deposit, and contract term, among others. It’s important to be prepared to be offered a different APR figure than the one that the car finance company advertised. 


So, do you think a Personal Contract Purchase deal is the right one for you? Be sure to assess your needs and your budget thoroughly so you can arrive at a sound decision. When comparing PCP car finance deals, make use of the car finance calculators available online. Most car finance companies have them on their websites. While they can only provide estimates, it’s a good start when shopping for the best PCP car finance deals.