Compare the true total cost of PCP finance against paying cash. Includes interest, balloon payment, APR verification and opportunity cost of savings.
PCP (Personal Contract Purchase) is the UK's most popular car finance method, used for over 75% of new car sales. Understanding whether it costs more than cash requires comparing two distinct cost structures.
The true cost of PCP if you keep the car = Deposit + (Monthly payment × term months) + Balloon payment. This total, minus the car's original price, gives you the total interest paid to the finance company.
Paying cash is not 'free' — you forgo the interest those savings would have earned. The opportunity cost = Car price × annual savings rate × years. For example, £25,000 in a 4% savings account earns £1,000 per year, or £3,000 over a 3-year term.
| Factor | PCP | Cash |
|---|---|---|
| Monthly outgoing | Predictable fixed payment | £0 (once paid) |
| Capital tied up | Only deposit | Full price upfront |
| Interest paid | APR on financed amount | £0 |
| Flexibility | Can hand back at end | Must sell to release value |
| Ownership | Only after balloon payment | Immediate |
PCP (Personal Contract Purchase) is a type of car finance where you pay a deposit, fixed monthly payments over a term (usually 2–4 years), and then either pay a large final 'balloon' payment (the GMFV) to own the car outright, hand it back, or use any equity as a deposit on a new deal. PCP is the most popular car finance type in the UK, accounting for over 75% of new car sales.
In pure cost terms, yes — PCP almost always costs more because you pay interest on the amount financed. However, if the cash would otherwise earn returns in savings or investments, you need to factor in the opportunity cost of tying up capital. Our calculator shows both the PCP premium and the adjusted comparison accounting for your savings rate.
The balloon payment (GMFV — Guaranteed Minimum Future Value) is the optional final payment at the end of a PCP deal, set at the start as a guaranteed minimum resale value for the car. If you want to own the car at the end of the contract, you pay this lump sum. If the car is worth more than the GMFV, you have positive equity to roll into a new deal.
The true APR on a PCP deal is calculated from the actual cash flows: initial advance (car price minus deposit), monthly payments, and final balloon payment. The APR is the discount rate that makes the present value of all payments equal the amount financed. Our calculator shows whether the dealer's stated APR matches your actual payment stream.
The right choice depends on: (1) the PCP interest rate vs your savings return — if your savings earn 5% and PCP costs 4%, you're better off financing, (2) whether you want to own the car or prefer flexibility to change, (3) the total PCP premium vs what the cash would earn elsewhere. Many buyers find that a 0% or low-rate PCP deal is genuinely cheaper than cash when factoring in investment returns.
A good PCP APR in the UK is anything below 5%. Manufacturer-sponsored deals often offer 0–2.9% APR on new cars. Typical rates for used cars are 6–12% APR. Rates above 15% APR are expensive. Always check the representative APR and confirm your personal rate in writing before signing.
Yes, you can settle a PCP agreement early. Under the Consumer Credit Act, you have the right to voluntary termination once you've paid 50% of the total amount payable. Early settlement figures are usually available from your lender and will show the remaining principal plus any early repayment charge (usually 1–2 months' interest).
At the end of a PCP deal you have three options: (1) Pay the balloon payment (GMFV) to own the car, (2) Hand the car back with nothing more to pay (within mileage limits), (3) Use any equity (car value above GMFV) as a deposit on a new PCP deal.
PCP deals set an agreed annual mileage, typically 8,000–15,000 miles per year. Exceeding the limit incurs excess mileage charges, usually 3–10p per mile. Always agree a realistic mileage limit — it's better to over-estimate and pay a slightly higher monthly payment than to face large charges at the end.
Yes, PCP is a form of conditional sale credit regulated by the FCA under the Consumer Credit Act 1974. It appears on your credit file. The lender (not you) owns the car until you make the final balloon payment — if you miss payments, the lender can repossess the car.
Yes, PCP finance is available on used cars, though rates are typically higher than on new cars (6–15% APR vs 0–5% on manufacturer new car deals). The GMFV on a used car is lower relative to the car's value, which can mean higher monthly payments. Always get quotes from multiple lenders and compare total cost of ownership.
PCP has lower monthly payments than HP (Hire Purchase) because you defer a large chunk to a final balloon payment. With HP, you make equal payments and own the car at the end automatically. PCP gives you flexibility (hand back or pay balloon), while HP gives you guaranteed ownership. HP typically works out cheaper overall because you're paying off the full value with no deferred balance accruing interest.