High Value Notes
High Value Notes

Why choose a PCP product?

We’re regularly asked questions relating to the funding of a new car through PCP (Personal Contract Purchase).

Here we’ll deal with those FAQs through some direct responses.

Can you briefly describe a PCP?

This is a product typically associated with “gaining access to and using” a new car for an agreed period of time – usually 24-36 months or so.

We’ve said access above rather than “buying” because you’re not purchasing the vehicle (though you may get an option to do so at the end of the term of the facility).

It works like this:

  • you identify a vehicle you’d like to drive/use;
  • you approach a PCP funds provider;
  • you’ll need to find a deposit, typically around 10%;
  • the PCP provider will fund the balance to allow you to start driving the car;
  • you pay a monthly fee back that guarantees you your use of the car for the agreed term;
  • at the end of the term, you can simply return the vehicle to the PCP provider (who is the legal owner) or choose to buy it for what’s called a final “balloon payment”.

How does the arithmetic work here?

Very crudely by way of illustration, let’s assume you have a vehicle in mind valued at £30,000 and want to use it over 24 months:

  • you will find £3,000 by way of deposit;
  • the PCP provider will fund the remaining £27,000;
  • the PCP provider will calculate a value that they believe the vehicle will still be worth in 24 months when you return it (let’s assume here £15,000);
  • your monthly payments will be calculated based upon the difference (or loss in value) of £27,000-£15,000 i.e. £12,000 over 2 years plus interest.

There are many other variables that will be taken into account including your deposit, mileage and so on.

What happens if I exceed the mileage or damage the vehicle while I have it?

In both cases, you will typically incur extra charges from the PCP product provider. It’s worth trying to get the mileage estimation right at the outset.

It may be possible to cover such risks via insurance – we can discuss that with you.

How does this relate to 0% finance offers I’ve seen?

Whatever the base of the finance deal is, whenever you see “0%” finance offers then you should be cautious.

No organisation can regularly lend large sums of money for no return. So, such providers must be making higher profits elsewhere on the deal. That might include:

  • higher prices for the vehicles;
  • demands for larger deposits;
  • lower choice or availability of vehicles that have proven hard to shift; etc.

Why should I choose PCP over other options?

Discussing a PCP product does not mean that it is the most suitable for you in all circumstances.

At ACF Direct we have vast experience in the provision of funding for cars and can discuss various options and their pros/cons with you.

However, PCP does have a number of major potential advantages:

  • you have access to new cars based upon typically manageable deposit requirements;
  • the monthly payments are typically lower than say HP because they’re not actually being calculated based upon the full value of the vehicle (the residual value is deducted, as explained above);
  • you’ll typically change cars more frequently than if you’re buying outright;
  • you can walk away from the deal and the end of the term if you don’t want to buy the vehicle.

Does PCP have any disadvantages?

It is important that if you wish to purchase the vehicle at the end, you understand the balloon payment fully in advance. Along with this, do remember that the product is geared towards tying customers to a particular franchise. So, instead of paying the balloon payment at the end of the term, you may simply carry the ‘outstanding balance’ across to another vehicle in that same franchise.


  • the ‘contract’ is geared around a total mileage and the product is advertised with ‘from such and such’ per month – this may encourage you to underestimate your mileage. So if you do exceed the mileage, this then releases the manufacturer from their pre-calculated ‘future value’ of the car, which then becomes a liability to you, making you more financially exposed;
  • the return conditions are rigorous and can leave you with unexpected bills for rectification – it is difficult to determine what is fair wear and tear and commensurate for a given mileage – and has been the subject of many a dispute;
  • arguably, it also means that cars can become relatively more expensive than they should be because of the deferred element, luring customers with the monthly payment ahead of the overall liability;
  • at the end of the period, you have no asset to show for the payments you’ve made over the last 24-36 months (unlike with HP where at the end of the term you own the vehicle).