What is PCP car finance, and how does it work?

How the payments are built

The FCA describes a PCP as a form of hire purchase whose key feature is that the car’s value at the end of the contract is assessed at the start and deferred, which gives lower monthly repayments. The deferred value is the final payment, which the Financial Ombudsman Service says is sometimes known as the balloon payment.

Because part of the price is held back for the end, the monthly payments are lower than they would be if the whole price were spread across them.

Who owns the car

The dealer sells the car to the finance company, which owns it while you make the payments. You become the legal owner when, and if, you make the final payment at the end.

The choice at the end

• Pay the final payment and become the legal owner of the car.
• Do not pay it and hand the car back. The FCA notes that this often brings excess mileage or damage costs.
• Use any equity built up over the agreement towards a new agreement.

Read the key terms

The Financial Ombudsman Service sees complaints from people who did not know their agreement had an annual mileage cap, and from people unhappy with excess mileage or damage charges at the end. Check the mileage allowance, the charges and the size of the final payment in your own agreement before you sign.

Your rights on a regulated PCP

A PCP is hire purchase, so on a regulated agreement the Consumer Credit Act 1974 gives you the rights covered in our other answers: to withdraw within 14 days, to settle early at any time, and to end the agreement by handing the car back. The Act extends across the UK, including Northern Ireland.