PCP & Personal Finance

What it is

Finance for a vehicle bought in your own name rather than the business's. Personal contract purchase is the most common form, though hire purchase and personal loans sit here too.

With PCP you pay a deposit, then monthly payments across an agreed term. A large final payment, usually called a balloon or a guaranteed future value, sits at the end. What you decide to do about that final payment is what defines the whole arrangement.

What people use it for

A director who takes a car personally rather than through the company, because the tax position works out better that way. A partner or family member who needs a vehicle and would rather not tie it to the business.

It also comes up when someone wants a newer car than they would buy outright, and is comfortable changing it every few years rather than owning one for a decade.

Sometimes it's the opposite. Someone who has always used PCP, has realised they never actually own anything at the end, and wants to understand what hire purchase would look like instead. That's a conversation worth having before signing the next agreement rather than after.

What can be funded

Vehicles bought in your own name rather than the company's.

• Cars, new and used
• Used vehicles from dealers and, with some funders, private sales
• Motorhomes and campervans
• Motorcycles
• Light commercial vehicles taken personally rather than through the business

If the vehicle is genuinely for business use, it's worth checking whether business asset finance is the better route before going down the personal path. The tax treatment and the cost can differ, and it's easier to look at both before you commit than to unpick it afterwards.

How it works

PCP has three parts: a deposit, the monthly payments, and a final payment at the end.

The monthly payments don't cover the whole value of the vehicle. They cover the difference between what it's worth now and what the funder expects it to be worth at the end of the term. That expected figure is the final payment.

At the end you've three choices. Pay the final payment and keep the car. Hand it back and walk away, provided it's within the agreed mileage and in reasonable condition. Or use any value above the final payment as a deposit towards the next vehicle.

Hire purchase works differently. There's no balloon. You pay the full value across the term and the car is yours at the end. Monthly payments are usually higher for the same vehicle, because you're buying all of it rather than part of it.

Mileage matters on PCP. The final value assumes an agreed annual figure, and going beyond it means a charge when you hand the vehicle back.

You don't own it unless you pay the balloon

This is the most common misunderstanding by some distance. Three or four years of payments don't make the car yours. The final payment is what does that, and it's usually a substantial sum. If ownership is what you want, hire purchase is the more direct route.

The mileage limit is a real limit

Going over it costs money for each mile at the end of the agreement. If your driving is unpredictable, be honest about that at the start. A slightly higher agreed mileage is cheaper than an excess charge later.

Condition is assessed when you hand it back

Fair wear and tear is expected. Damage beyond it's charged for, and the standards are more specific than most people assume. It's worth reading what the agreement defines as acceptable rather than finding out at collection.

What happens at the end of a PCP agreement?

You pay the final payment and keep the vehicle, hand it back and walk away, or put any value above the final payment towards your next one. All three are normal. Deciding which before you sign, rather than in the final month, tends to lead to a better outcome.

Is PCP cheaper than hire purchase?

Monthly payments are usually lower, because you aren't paying off the whole value of the vehicle. Whether it works out cheaper overall depends on what you do at the end. If you pay the final payment every time, the picture looks different from handing the car back each time.

Can I settle early?

Yes. You've the right to settle a regulated agreement early and to receive a settlement figure from the funder. What you owe depends on how far through the term you are. Ask for the figure in writing before making the decision.

What if I go over the mileage?

There's a charge for each mile over the agreed limit, set out in the agreement. It's worth estimating your annual mileage honestly at the start, because agreeing a higher figure upfront usually costs less than the excess charge at the end.

Can I arrange personal finance through a business broker?

We arrange both, though they're different products with different rules. Personal agreements are regulated consumer credit and carry protections that business agreements don't. Tell us whether the vehicle is for you or for the business and we'll point you to the right route.