What is Personal Contract Purchase (PCP)?
Personal Contract Purchase (PCP) is a finance product that allows you the opportunity to buy a new or a used car. It is similar to a Hire Purchase agreement as you will usually pay an initial deposit, followed by monthly instalments over a term (usually between 18 to 48 months).

What are the advantages of PCP?

1. Monthly payments on a car financed by PCP are usually lower than if your car is financed by a Hire Purchase agreement.

2. If you decide not to buy the car, you can simply walk away when you have made all your monthly payments over the agreement term.

3. If your car is worth more than the Guaranteed Future Value then you can use that equity towards a deposit on a new car.

What makes PCP different to Hire Purchase (HP) is that any monthly instalments are paying off the depreciation of the car, and not its entire value.  When you get to the end of your agreement there is a final balloon payment that must be made if you wish to keep the car. The balloon payment is often referred to also as the Guaranteed Future Value (GFV).  If you don’t wish to own the car, you can simply hand it back (subject to T&Cs) or use any equity towards a new car.

What should you consider when opting for PCP?

1. If you want to buy the car and own it outright you will need to pay your final balloon payment (the Guaranteed Future value).

2. You need to consider your annual mileage allowance and agree this with the finance company as this forms a condition of your agreement.

3. You will be required to pay excess mileage charges if you exceed your mileage allowance over the term of the agreement.

4. You will not be able to sell the car without settling your agreement.

5. You will need to insure the car and keep it maintained in accordance with the manufacturers servicing schedules until the agreement is settled.

Can I settle my PCP agreement early?

You can normally settle your agreement early by asking the finance company to provide you with a settlement figure. However, the finance company will require you to pay off the difference between what your car is worth, and what you still owe and there may be a difference which is known as negative equity. On the other hand, you may find that at the end of your term your car is worth more than the Guaranteed Future Value, which means you will have some positive equity to contribute towards your next car.



What is Hire Purchase (HP)?
Hire Purchase is a way to finance buying a new or used car. You will normally pay an initial deposit and will pay off the entire value of the car in monthly instalments. When all the payments are made, the Hire Purchase agreement ends, and you own the car outright.

What are the advantages of HP?​

1. You will be able to order a new or used car and drive it away without having to buy it outright.

2. Unlike PCP you will not need to estimate your annual mileage and so therefore will not be subjected to any excess mileage charges.

3. Once you have made your final monthly payment, including the option to purchase fee, you will have full ownership of your car.

What should you consider when opting for HP?

1. Your monthly payments maybe higher than PCP as you are paying off the full value of the car.

2. You will not be able to sell the car without settling your agreement.

3. You will not own the car until you have made all of you repayments.

4. You will need to insure the car and keep it maintained in accordance with the manufacturers servicing schedules until the agreement is settled.

Can I settle my HP agreement early?

You can normally settle your agreement early by asking the finance company to provide you with a settlement figure. However, the finance company will require you to pay off the difference between what your car is worth, and what you still owe and there may be a difference which is known as negative equity.


What product is best for me?

​Both Personal Contract Purchase and Hire Purchase allow you to pay a deposit and commit to monthly payments over a set period. However, the ownership options are slightly different for each product.

The monthly payments on a PCP quote can be slightly cheaper than HP due to the Guaranteed Minimum Future Value at the end of the agreement. You also have three options at the end of a PCP agreement; hand the vehicle back, swap and drive away a new car, or pay the GMFV taking in order to take ownership of the car.

With HP, the vehicle’s full value will be divided over a selected term, with a set monthly payment.  Once the last payment has been made you'll take ownership of the vehicle.

Whatever option you choose, it's important that you select the product that best suits you.  If you're unsure whether you'll be able to obtain finance, use our free credit search below. It won’t leave any mark on your credit score!

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