Car PCP Calculator

What PCP actually is

Personal Contract Purchase is Hire Purchase with most of the car's value deferred to the end. You pay a deposit, then monthly instalments, but those instalments are not repaying the whole car. They cover the depreciation over the term plus interest, and a large lump sum, the Guaranteed Minimum Future Value, sits waiting at the end.

That is the entire trick, and it is why PCP monthly payments look so much lower than HP on the identical car. You are financing the part of the car you use, not the part you give back.

At the end you choose one of three things: pay the GMFV and own the car, hand it back and owe nothing more, or part-exchange it and use any equity above the GMFV as a deposit on the next one. The finance company remains the legal owner throughout, exactly as with HP.

How the monthly payment is worked out

The amount financed is the cash price minus your deposit. From that, the present value of the balloon is subtracted, because that portion is not being repaid over the term, and the remainder is amortised across the months. Formally: M = (financed − B(1 + r)^−n) × r / (1 − (1 + r)^−n), where B is the GMFV, r is the APR divided by 1200 and n is the term in months.

Interest is charged on the whole outstanding balance, including the deferred GMFV. This is the point most often misunderstood: you pay interest on the balloon for the entire term even though you have not repaid a penny of it, which is why the total cost of keeping the car exceeds what HP would have cost.

The GMFV itself is set by the lender from the car's predicted value at the end of the term, which is why your contracted annual mileage matters when the deal is written. Higher mileage means a lower predicted value, a lower GMFV and therefore a higher monthly payment.

PCP against HP on the same car

This is the comparison worth making before signing anything. On a £25,000 car with a £2,500 deposit at 7.9% over 48 months with a £9,000 GMFV, PCP costs £388.19 a month. The same car on HP costs £548.24.

PCP is £160.05 a month cheaper, which is real and is why it sells. But paying the GMFV to keep the car takes the PCP total to £30,133.12, against £28,825.52 on HP. Owning the car costs £1,307.60 more on PCP.

So the choice is not about which is cheaper, it is about what you want at the end. If you intend to keep the car long-term, HP is cheaper and simpler and carries no mileage limits. If you intend to change every three or four years, PCP's lower monthly payment buys flexibility you would not otherwise have, and the extra cost is what that flexibility costs.

What does not make sense is choosing PCP for the monthly payment and then paying the balloon anyway. That is the most expensive route to ownership of the options available, and it is a very common one.

Mileage limits and condition charges

PCP contracts a specific annual mileage, and exceeding it is charged per excess mile at a rate set in the agreement. Those pence per mile add up quickly over a four-year term, so contracting a realistic figure at the start is far cheaper than paying the excess later, even though a higher contracted mileage raises the monthly payment.

If you hand the car back, its condition is assessed against fair wear and tear, and most UK lenders use the BVRLA's published standard. It is worth reading that standard rather than guessing: it is reasonably generous about the marks a car naturally acquires, and specific about what it is not, such as kerbed alloys, missing service history and unrepaired windscreen chips.

Neither charge applies if you pay the balloon and keep the car. That is worth remembering if you are over mileage or the car has had a hard life, because keeping a car you would otherwise hand back can be cheaper than the charges.

Get the car inspected, and any small damage repaired independently, before the handback appointment. Lender repair charges are typically well above what a local specialist charges for the same work.

Equity, negative equity, and the rollover trap

Equity is the car's market value minus what you still owe. If the car is worth more than the GMFV at the end, that difference is yours, and it usually goes straight into the next deal as a deposit. That is the mechanism that keeps people in a cycle of PCP agreements, and it works perfectly well while used values hold up.

Negative equity is the reverse: the car is worth less than the outstanding balance. It is normal in the early part of a PCP agreement, because depreciation outruns repayment at the start. It matters when you want to change cars early.

The trap is rolling negative equity into a new agreement. A dealer will often offer to settle the existing finance and add the shortfall to the next deal, which makes the problem disappear from view while making the next agreement larger and the next negative-equity position worse. It compounds quietly across two or three cars.

If you are in negative equity and want out, Voluntary Termination is usually the better route than settling. Our car finance early settlement calculator works out which applies to your agreement.

Your rights on a PCP agreement

PCP is a regulated agreement under the Consumer Credit Act 1974, which gives you two rights worth knowing before you need them.

You can settle early at any time under section 94, and you receive a statutory rebate of interest you have not yet incurred, calculated under the Consumer Credit (Early Settlement) Regulations 2004. The lender may defer the settlement date by up to 58 days on longer agreements when working out that rebate.

You can also voluntarily terminate under sections 99 and 100 once you have paid half of the total amount payable. Critically, on PCP that half is measured against the deposit plus the obligatory instalments and excludes the optional final GMFV payment, which means the 50% point arrives earlier than people expect. Once past it, you can hand the car back in reasonable condition and owe nothing further.