Personal Contract


A comprehensive guide to understanding PCP car finance.

Understanding the Drop in Loan Amounts for Used Cars: What It Means for Car Dealerships & Finance Intermediaries.

Thinking about buying a new car, but feeling unsure about your financing options?

Have you considered Personal Contract Purchase (PCP)? It’s a fantastic choice if you want to finance your vehicle without breaking the bank each month. With PCP, you’ll enjoy lower monthly payments, which means more money in your pocket for other things you love.

This page covers all things Personal Contract Purchase, giving you insight into how it works, its pros and cons, aswell as the main differences between PCP and other finance options. Read on to discover how Personal Contract Purchase may be right for you.

Benefits of Personal Contract Purchase


PCP payments are lower than HP Finance because you don’t pay for the full car cost. You save for the final balloon payment during the finance term. If you want to change vehicle, you can return the car at the end.


At the end of a PCP agreement, it is easy to roll over to a new car. If the value of the car is worth more than the balloon payment, you can use the difference as a deposit on another vehicle.


PCP deals protect you against vehicle depreciation. At the start of the agreement a Guaranteed Minimum Future Value (GMFV) is set. If the car starts to depreciate quicker than the GMFV, the customer can hand back the car.

How Does Personal Contract Purchase Work?

PCP car finance is a widely used method of purchasing a car. It involves paying a deposit followed by fixed monthly payments for an agreed term, typically two to four years. At the end of the term, you have three choices: return the car, pay a final balloon payment to own it, or trade it in and use any equity as a deposit on a new car. PCP agreements often have mileage limits and wear-and-tear guidelines, and interest rates vary depending on your credit score.

Pros and Cons of Personal Contract Purchase

Advantages of Personal Contract Purchase Car Finance:

    • Make lower monthly car repayments than other car finance types (due to a balloon payment).
    • Have the option to drive a new car every few years. At the end of the PCP agreement, providing all payments are made, you can do not have to own the car. Hand it back and find another car to finance.
    • The Guaranteed Future Minimum Value will not change during the agreement term, meaning you can save towards it.
    • With a PCP agreement offering lower monthly payments, you can drive a car that is out of your price range if you were to purchase upfront.
Disadvantages of Personal Contract Purchase Car Finance:
  • At the start of a PCP agreement, you may be set a mileage limit for the vehicle. This is to protect the vehicles value if you choose to sell at the end of the car finance agreement. It is also used in calculating the Guaranteed Minimum Future Value of the car. If you are to exceed these mileage restrictions, there will be financial penalties to face.
  • You do not own the car during the agreement, only when all payments are made.
  • A balloon payment presents a significant financial burden. If you face unforeseen circumstances, it may become difficult to pay the balloon fee. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Hire Purchase vsPersonal Contract Purchase

Car Ownership at the End of Your Agreement

Fixed Monthly Payments

Final Balloon Payment

Avoid Excess Mileage Charge

Secured Against an Asset (e.g. a car)

Support With Vehicle Issues

Requires Initial Deposit






The Role of Deposits in Personal Contract Purchase Agreements

In PCP agreements, a deposit has the same effect it does in other car finance agreements. A higher deposit will reduce monthly car repayments.

A large deposit will not affect balloon payments. This is because the balloon payment is based on the GMFV set out at the start of the agreement. A balloon payment will not change during the agreement and cannot be affected by a deposit.

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Ready to drive your dream car?


Now that you know the ins and outs of personal contract purchase car finance, you might be wondering what your next steps are.

At Marsh Finance, we make it easy for you to apply for car finance with our quick and simple one page application form. Easily fill out our form in under thirty seconds and you’ll find out if you’re pre-approved on the same day, without it impacting your credit score. Whether you’re looking to upgrade your car for work, family, or adventure, we’re here to help you make it happen. So why wait? Apply now and drive your dream car today!


Personal Contract Purchase FAQs

What is a balloon payment?

A balloon payment is a large lump sum payment that is due at the end of PCP agreements. This final payment is usually significantly larger than the regular monthly payments made throughout the agreement.

    Can I pay off PCP early?

    Yes, you can. However, this will involve significant financial outlay as you will have to pay the sum of the monthly repayments and the balloon fee. We recommend you stick to the terms of your agreement unless you can absolutely afford early termination of your PCP contract.

    This should not be taken as financial advice, and you should conduct further research specific to your issue. 

    What happens at the end of a PCP agreement?

    At the end of the PCP agreement, you have three options:

    • Make a lump sum payment (also known as a balloon payment) to purchase the car outright
    • If you have positive equity on your car, you can put the equity down as a deposit on a new vehicle. The new agreement will have to be a PCP deal.
    • Hand the car back – providing all payments are made, you can simply hand the car back
    What is Guaranteed Minimum Future Value?

    Guaranteed Minimum Future Value (GMFV) is a term used in car financing that guarantees a minimum value for the car at the end of a Personal Contract Purchase (PCP) agreement. This essentially determines how much you will own at the end of the agreement. The difference between the car’s current value and GMFV determines monthly car repayment amounts. GMFV is based on many factors such as the car quality, the model, as well as mileage and the length of the car finance contract desired.

    Representative Example

    Rates from 14.9%

    Representative example: borrowing £10,000 over 60 Months with a representative of 17.9% APR, an annual interest rate of 17.9% (fixed), and a deposit of £0.00, the amount payable would be 59 repayments of £255.42 per month, with one final repayment of £265.42 (which includes the option to purchase fee of £10.00), with a total cost of credit of £5,335.20 and a total amount payable of £15,335.20.

    Marsh Finance Limited are a lender, not a broker.

    This is for illustrative purposes only and is not a quote or an offer of finance.