- Car price
- £20,000
- Deposit & part-exchange
- −£2,000
- Amount financed
- £18,000
- Interest over the term
- +£5,087
- Balloon, deferred to the end
- £8,000
- Total amount payable
- £25,087
£314.30 a month, £25,087 total payable
PCP result
PCP · 48 monthly payments
£314.30/mo
then a £8,000 final payment if you keep the car
- Your monthly payment is only half the story — the total is what you actually hand over. Figures are estimates; your real quote depends on the lender and your credit.
- Your figures never leave your browser — we don't see or store them.
Your figures never leave your browser — we don't see or store them.
How we work this out
Monthly = (amount financed − balloon × discount factor) × monthly rate ÷ (1 − discount factor), where the discount factor is (1 + monthly rate)^−term. Total to own = deposit + payments + balloon. Total interest = total to own − car price.
The balloon is the Guaranteed Minimum Future Value (GMFV), and you only pay it if you keep the car. Lenders set it from predicted depreciation, mileage and term.
Full method: how we calculate.
PCP (Personal Contract Purchase) is car finance where your monthly payments cover the car's expected drop in value, with an optional final payment (the balloon, set at the GMFV) if you want to keep it. This PCP calculator takes the car price, deposit, term, APR and balloon, then shows your monthly payment and the total amount payable, so a low monthly can't hide the true cost of owning the car at the end.
PCP is the most common way to finance a new car in the UK because the monthly payment looks small. You're only paying off the depreciation, not the full price, because the balloon (the car's predicted value at the end) is left until last. Pay it and the car is yours; hand the car back and it isn't. The rest of the page covers how PCP works, PCP vs HP, and ending a PCP early.
What is PCP car finance?
PCP is a type of car finance where you pay for the car's depreciation, not its full price, and ownership is optional at the end. You put down a deposit, pay fixed monthly payments for 24 to 48 months, then choose to pay the balloon and keep the car, hand it back, or part-exchange.
Because you're only financing the drop in value rather than the whole price, the monthly payment is lower than HP for the same car. The trade-off is straightforward: you don't own the car unless you pay the balloon at the end, and you pay interest on that balloon for the whole term.
PCP is a regulated agreement under the Consumer Credit Act 1974, which gives you the right to settle early with an interest rebate and to hand the car back through voluntary termination once you've paid 50% of the total amount payable.
How does PCP work?
PCP runs in three stages: a deposit, fixed monthly payments over 24 to 48 months, then a choice at the end. The deposit and the balloon are set at the start; everything in between is the depreciation plus interest.
The lender fixes the balloon at the start from the car's predicted future value, which depends on the model, the agreed annual mileage and the term. Go over the mileage or hand back a damaged car and you'll pay excess charges.
- Deposit: usually around 10%, so a £2,000 deposit on a £20,000 car. Some deals offer a zero-deposit entry, but that raises the monthly and the total interest.
- Monthly payments: fixed for the term, typically 24 to 48 months, covering the depreciation plus interest. A longer term lowers the monthly but raises the total interest.
- The choice at the end: pay the balloon (GMFV) to own the car, hand it back and walk away, or part-exchange any equity above the balloon into a new deal.
What is a balloon payment (GMFV)?
The balloon, or Guaranteed Minimum Future Value, is the lump sum you pay at the end of a PCP only if you choose to keep the car. The lender sets it at the start based on the car's predicted value, your mileage and the term.
It's called 'guaranteed' because whatever the car is actually worth at the end, that's the figure the lender will accept to let you own it. If the car is worth more than the balloon, you have positive equity to put towards a new deal. If it's worth less, you can hand it back and the lender takes the loss. That's the guarantee working in your favour.
Worked example
What happens at the end of a PCP?
You have three choices at the end of a PCP: keep the car by paying the balloon, hand it back and walk away, or part-exchange any equity. Each choice has different maths.
Our view: the 'walk away' option is the easiest part of PCP to undervalue, because it works as a form of insurance. If used-car prices fall and the car is worth less than the balloon, you hand back the keys and the lender absorbs the shortfall. That protection is part of what the extra interest on PCP is paying for.
- Keep it: pay the balloon (often via a new loan or cash) and the car is yours. Your total amount payable is the deposit plus all monthly payments plus the balloon.
- Hand it back: return the car and walk away, owing nothing more, as long as it's within the mileage and condition terms. Excess mileage and damage are charged separately.
- Part-exchange: if the car is worth more than the balloon, the difference is equity you can put towards your next car (see selling on finance).
PCP vs HP: which is cheaper?
HP is usually cheaper overall; PCP keeps the monthly lower. The balloon makes the difference, because you pay interest on it for the whole term.
That £1,400 gap is the price of the lower monthly and the flexibility to walk away. On balance, if you know you want to own the car at the end, HP usually wins. If you like changing cars every few years and value the walk-away option, PCP can be worth the premium. See the full breakdown in PCP vs HP vs leasing, or compare with HP directly.
| PCP (£8,000 balloon) | HP | |
|---|---|---|
| Monthly | ≈ £314 | ≈ £452 |
| Total to own | ≈ £25,086 | ≈ £23,695 |
| Total interest | ≈ £5,086 | ≈ £3,695 |
| Own it at the end? | Only if you pay the balloon | Yes, automatically |
| Mileage limit? | Yes | No |
Mileage limits and excess charges
Every PCP sets an agreed annual mileage, and going over it triggers an excess charge per mile at the end. That charge applies whether you keep the car or hand it back.
Typical limits are 8,000 to 12,000 miles a year, with excess charges from a few pence to over 20p per mile. Set the mileage realistically at the start. Overestimating lowers the balloon and raises the monthly, but underestimating hands you a bill at the end: going 5,000 miles over on a 3-year deal at 15p a mile costs £750.
Watch the mileage
Negative equity on a PCP: why it happens early, and how to avoid rolling it over
Negative equity (owing more on the finance settlement figure than the car is currently worth) is more common on PCP than on any other type of car finance, especially in the first year or two. The balloon keeps your balance high just as the car depreciates fastest.
It's market practice, not a legal term: no statute defines negative equity. It happens because PCP puts a large slice of the price into the balloon. Your early payments clear the depreciation and interest but barely touch that chunk of capital, while the car itself typically loses the most value in its first one to two years. On HP the balance falls faster because you're paying off the whole price, so negative equity tends to be smaller and clear sooner. It can still happen on HP, but it is less common and usually less severe.
Work it out as early settlement figure minus the car's current market/trade-in value on the negative equity calculator. If you're mid-deal and want out, voluntary termination sidesteps the problem: voluntary termination (CCA 1974 s99/s100) caps liability at 50% of the total amount payable, not the settlement figure — so it can clear negative equity where the debtor is eligible.
Don't roll it into a new deal without checking the maths
Deposits, terms and the PCP maths
Three levers move the PCP monthly: the deposit, the term, and the balloon. A bigger deposit lowers both the monthly and the total; a longer term or a bigger balloon lowers the monthly but raises the total interest.
Notice the pattern: a bigger deposit cuts the monthly and the total to own, because you borrow less. A longer term and a bigger balloon both lower the monthly but raise the total to own. The longer term costs the most here, because you pay interest for 12 more months, and a bigger balloon adds interest because you're carrying £10,000 rather than £8,000 for the whole term. Put your own deposit, term and balloon into the calculator above to see how each one moves the total amount payable.
| Change | Monthly | Total to own |
|---|---|---|
| Base (£2,000 deposit, £8,000 balloon) | ≈ £314 | ≈ £25,086 |
| Bigger deposit (£4,000) | ≈ £264 | ≈ £24,676 |
| Longer term (60 months) | ≈ £273 | ≈ £26,385 |
| Bigger balloon (£10,000) | ≈ £280 | ≈ £25,434 |
Your 14-day right to withdraw from a PCP agreement
Once you've signed a PCP agreement, you have 14 days to change your mind and withdraw for any reason, with no fee or charge for withdrawing. It's a separate right from settling early or voluntary termination, and it covers almost every PCP deal.
Under Consumer Credit Act 1974, section 66A, the clock runs from the latest of: the day the agreement is made, the day the credit limit is notified, or the day you receive a copy of the executed agreement. For most PCP deals signed and handed over on the same day, that's 14 days from signing. It doesn't apply if the credit exceeds £60,260 (other than a residential renovation agreement), or the agreement is secured on or for the purchase of land, which in practice rules out only the very highest-value car deals.
It's a cooling-off right, not a free trial: if the car and the credit have already been handed over, withdrawing still means repaying any credit already provided plus interest accrued at the agreement's contractual rate — no compensation, fees or charges, within 30 days. Once the 14 days pass, this right ends and your exit options become settling early or voluntary termination once you've paid 50% of the total amount payable.
Your withdrawal right
Thinking of ending a PCP early?
You can end a PCP early by settling it, or once you've paid 50% of the total amount payable, by voluntary termination. Both are rights under the Consumer Credit Act 1974.
Settling means paying the outstanding balance now, with a statutory rebate of the interest you haven't yet been charged. You can work it out with the settlement calculator. Voluntary termination lets you hand the car back once you've paid half the total amount payable (deposit + all monthly payments + balloon), owing nothing more, subject to mileage and condition. See voluntary termination for the detail.
Early in the deal you're often in negative equity, where the car is worth less than the settlement figure, because PCP payments reduce the balance slowly. That matters if you want to sell or part-exchange rather than settle or VT.
Were you mis-sold a PCP?
Some PCP deals taken out between 6 April 2007 and 1 November 2024 carried hidden commission that pushed up your interest rate. If yours did, you may be owed redress.
The FCA made a motor finance redress scheme (PS26/3) on 30 March 2026, following the Supreme Court ruling on commission disclosure of 1 August 2025. Parts of it are suspended by the Upper Tribunal with effect from 29 June 2026, pending a legal challenge to be heard 16 February to 3 March 2027, and lenders don't have to calculate or pay compensation until it ends. The FCA estimates the scheme would return around £7.5 billion at 75% uptake, across roughly 12.1 million agreements, an average of about £829. Payouts are expected in 2027 at the earliest, if the scheme is upheld and the judgment is not appealed. You can estimate your position with the compensation estimator. Every figure is an estimate, not a promise, and you can claim free yourself with no claims firm.
Is PCP right for you?
PCP suits drivers who want the lowest monthly, a new car every few years, and the option to walk away. HP suits those who want to own the car outright for the lowest total cost.
- Choose PCP if you value a low monthly, change cars every 3 to 4 years, and are comfortable with a mileage limit.
- Choose HP if you want to own the car outright, don't want a mileage limit, and want the lowest total cost.
- Choose a personal loan if you want to own from day one and sell whenever you like.
- Choose leasing if you never want to own and just want a fixed monthly budget.
Your PCP rights
Frequently asked
What is PCP car finance?
What is a balloon payment (GMFV)?
Do you own the car at the end of a PCP?
Is PCP cheaper than HP?
Can you end a PCP early?
What happens to the balloon if the car is worth less?
What is the excess mileage charge on a PCP?
How is the PCP monthly payment calculated?
Sources
We cite regulators and official UK sources only.
- Consumer Credit Act 1974legislation.gov.uk
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