Personal contract plan
What you need to know about personal contract plans (PCPs)
Personal Contract Plans (PCPs) offer lower monthly repayments than hire purchase, but they are one of the most complex forms of car finance. PCPs involve an upfront deposit or trade‑in (usually 10–30% of the car’s value), fixed monthly repayments and a large final “balloon payment” – a lump sum agreed at the start that you must pay if you want to own the car at the end. This page explains how PCPs work, what terms and limits to check and what to consider before signing up or choosing your end‑of‑agreement option.
PCPs: low monthly payments, but look closer
Many car dealers offer Personal Contract Plans (PCPs) as a way to pay for a car. PCPs often seem attractive because they usually have low monthly repayments. However, PCPs are more complex than other types of car finance, so it’s important to understand all the terms and conditions before you sign up.
A PCP is a specific type of finance that is similar to a standard Hire Purchase (HP) agreement. Many of the legal rules that apply to HP also apply to PCPs. The main difference is that you pay off less of the amount owed during a PCP, which means you will still owe a significant amount at the end of the agreement.
Watch the CCPC's PCP video below, which explains how personal contract plans work when buying a car.
How does a PCP work?
There are three main parts to a PCP:
- Deposit
Typically between 10% and 30% of the car’s value. You can pay the deposit in cash or trade in your current car. - Monthly repayments
PCPs usually last for three years and have low monthly repayments. This is because a large portion of the car’s cost is not paid until the end of the agreement. Paying a significant deposit can also reduce the monthly repayments. - Final balloon payment
This is a large, final payment set at the start of the agreement. It’s the amount you need to pay to own the car at the end.
Note: If you need to end your PCP early, you may be able to return the car under the half rule or explore voluntary surrender options. These can have financial and credit implications, so check the terms carefully before proceeding.
PCPs are among the least flexible forms of car finance. Because the repayments are fixed for the term of the agreement, you can’t usually increase your repayments each month if you want to and if you want to extend the term, you may be charged a rescheduling fee. This is generally the same for a straight consumer hire purchase agreement.
There may also be limits on mileage, rules about wear and tear, and servicing requirements.
As with other types of credit, your finance company will send details of your repayments to a credit reference agency. Find out more about your credit history.
What should you consider before signing up for a PCP?
Before signing up for a PCP, make sure you fully understand how it works and have calculated the total cost. Consider these key questions:
- What are the mileage limits and penalties for exceeding them?
- What are the rules about modifying the car?
- Are there servicing requirements?
- What type of motor tax and insurance are required?
- Will you be able to pay the final balloon payment or have enough saved for a deposit on a new PCP?
What if you have problems making repayments?
If you have problems making repayments on a PCP, options include returning the car under the half rule. Contact the finance provider early to avoid penalties. To learn more about these options, go to our information on problems making car repayments.
What happens if your car is faulty?
When you buy a car from a dealer, you have consumer rights. If you buy a car on PCP and find a fault, the finance company is responsible for fixing the issue, as they are the legal owner. As a first step, return to the dealer and ask them to fix it.
If the finance company will not help, use their complaints process. If necessary, escalate your complaint to the Financial Services and Pensions Ombudsman.
What happens at the end of a PCP?
At the end of your agreement, you have three options:
- Pay the final balloon payment and own the car
Until you make this payment, the finance company owns the car. If you want to own the car, plan how you will pay the balloon payment well before your agreement ends. You may need to take out a personal loan to cover it. - Hand the car back
If you hand the car back, you generally don’t have to pay anything more, but you might face penalties if you haven’t met all terms and conditions, such as exceeding mileage limits or excessive wear and tear. Any equity in the car is not refunded to you. - Enter into another PCP agreement
The deposit for your first car won’t be returned. If your car is worth more than the final payment, you may have equity to use as a deposit for a new car. The value depends on the car’s condition and the second-hand market.
What if the car is worth less than the final payment?
If the value of second-hand cars has fallen or your car is in poor condition, you may not have any equity at the end of the agreement. You will need to fund your next deposit another way, or you might pay more than the car is worth if you want to own it.
What if your mileage is higher than agreed?
If you return the car or enter a new PCP, exceeding the mileage limit can mean financial penalties or less equity for your next deposit. Track your mileage regularly to avoid this problem.
