The three parts of a PCP
Deposit (optional): 0-20% down at signing.
Monthlies across 24-48 months: cover interest plus part of the car's depreciation.
Optional Final Payment (the "balloon"): the car's Guaranteed Minimum Future Value, calculated at the start. Pay it to keep the car; walk away if you don't want to.
Why monthlies are so much lower than HP
PCP defers most of the car's value to the balloon. On a £20,000 car with an £8,000 balloon, you're only financing £12,000 across the term instead of the full £20,000. That's why PCP typically undercuts HP by £80-£150 a month on the same car.
The mileage cap
PCP includes an annual mileage cap set at the start (typical: 8,000-15,000). Exceed it and you'll pay 5-25p per excess mile at return. Choose a realistic figure — misjudging by 3,000 miles a year for four years could cost £1,500+.
The three ways out at the end
1. Pay the balloon and keep the car.
2. Hand it back (subject to fair wear and tear) and walk away with nothing further to pay.
3. Trade the equity into a new PCP if the car is worth more than the balloon.
Who PCP suits
Drivers who like to change car every 2-4 years, want the lowest monthly figure, and don't cover very high mileage. Not the right choice if you want to own the car outright at the end or drive 20,000+ miles a year.
