Personal Contract Purchase – what is fact and what is fiction?

More motorists than ever are financing their new wheels with PCP. But do you know everything you should about the method and its misconceptions?

The majority of new cars you’ll see on the roads these days will have been acquired by using what is still a relatively new form of purchase. 

Personal Contract Purchase (PCP) has rocketed in popularity and it’s not difficult to see why. It offers a wider (and, generally, better) range of vehicles for lower monthly payments than most other forms of finance.

But do you know the ins and outs of the deal you may be buying into – and paying into for the next two-to-four years?

Many myths relating to vehicle finance exist – and can easily get pushed to the back of our minds when drivers’ eyes are lighting up at the prospect of getting behind the wheel of a fancy new ride. Asking at the dealership might not be the best course of action – we suspect that there may be one or two salespeople flogging cars on a forecourt that don’t necessarily have their customers’ best interests at heart.

In fact, the sales tactics at dealerships has been called into question on many an occasion. Customers have not been given all the details of the agreement they are tying themselves down to. If you entered into a PCP deal (or indeed any finance package) when you last got a new car, think back and ask yourself if you were taken for a ride.

Were you given all the facts and details about what you were buying into? Did your salesperson furnish you with all the details of your deal, their fees and commissions included? Was a mileage limit mentioned? 

If you have any concerns that your finance package was mis-sold then speak to one of our experts and see if there’s a case to claim compensation. We’re not motoring specialists – we wouldn’t know a carburettor from a crankshaft – but we’ll be able to give you reliable advice on making a claim to recover your money if your dealership created an unfair relationship.

Call 0161 200 9960 or click that icon at the bottom-right of the page to start a webchat, and see what we can do to help you.

OPTIONS: A wealth of finance packages are available to motorists

For now, though, let’s investigate the cold, hard facts behind what’s paying for your shiny new car.

You aren’t really buying the car

A PCP finance deal isn’t renting a car, and you aren’t leasing it either, though it can appear to be the case. Although the driver is buying it over time, they won’t actually have legal ownership of it until the final balloon payment has been made. So essentially the payments towards eventually owning the car are being made, it’s just that relatively few customers – it’s thought to be less than a fifth – actually pay it in order to own the car.

Are budget motorists being forced off the road?

They can simply hand back the keys and walk away or use the car in a part-exchange deal to get a new vehicle on a new PCP package, so splashing out thousands in order to keep their existing wheels might not seem that attractive an option.

You will be guaranteed to have equity in the car when the agreed term ends

The idea is that your car will be worth more than the long-since agreed guaranteed future amount and/or the balloon payment. The reality is that the car isn’t necessarily worth the final payment, meaning there won’t be any equity to put towards another vehicle. 

It’s quite easy to forget that they will have put a significant amount down as a deposit just a few years earlier and are now having to find more to give to the dealership

With a PCP deal you can hand the car back at any stage without penalties

Walking away from a PCP deal because your circumstances have changed and you feel you can no longer afford it can be a minefield to navigate, and it’s a situation that should be avoided at all costs.

PCP packages do come with a voluntary termination option. This allows the motorist to give back the car and terminate the contract. However, this is only possible is 50% of the total amount owed has been paid off. Crucially, this does not mean if they’re halfway through their repayment term as it’s generally only in the last few months of a PCP that the customer will reach that point.

A voluntary termination is still possible but they’ll still be liable to pay what is needed to reach that 50% mark. 

Another, messier and less palatable, outcome could be a voluntary surrender. It means that, once the car is returned, it’s auctioned off by the finance company to go towards what’s owed. The customer is still liable for the remainder, which is likely to be thousands, and this can end with legal action and collection agencies getting involved.

The mileage limit is irrelevant

How many drivers on PCP packages ignore the limit they agreed to at the start of their term? The consensus has been that the annual mileage has little or no bearing on the driver’s pocket so they might as well declare a low figure in order to keep their payments down. PCP agreements have an excess mileage charge BUT it only comes into play if the vehicle is being returned at the end of the term.

Drivers who plan to make the balloon payment can clock up as many miles as they like without penalty. Those handing it back (or using it to part-exchange on a new deal) need to be aware that the excess mileage is usually around 10p per mile. Once totted up, the finance company will bill you at a later date.

The other issue is the value of the car at the end of the agreement. Setting the mileage allowance too low at the outset means the car’s value will be much lower at the end and could mean they’ll pay the equity shortfall or excess mileage charges.

WHICH WAY?: Navigating the motor vehicle financing options can be difficult

You can upgrade the car whenever you like

Technically, yes you can. Can you do it for free? No, you can’t. Your dealer might contact you out of the blue midway through your agreement term to offer you an upgrade. However, the car you took on is almost certain to be worth a lot less than the amount you owe, so you will need to find money to pay that as well as a deposit on your upgraded car.

The smarter the driver, the smaller the deposit they’ll pay at the start

It stands to reason that the bigger the deposit, the less you’ll owe and the smaller the monthly payments will be. In other words, the more you put down up front the less interest you’ll pay.

NOTE-WORTHY: Paying a deposit at the start of a PCP term is not like forking out on a bond

A customer should balance their PCP plan to suit them, not their salesperson, whose commission is most likely paid according to every pound their customer is borrowing. If they recommend putting in a smaller deposit and paying more in monthly payments and interest, ask yourself why.

You’ll get your deposit back

The term ‘deposit’ may be the misleading element here – although it is referred to as the deposit it’s not a repayable bond similar to, say, a home renter’s deposit that they get back upon the end of their tenancy. Just like the monthly instalments, once the initial payment is made, it’s gone forever. 

There is a lot of flexibility in a PCP agreement

Absolutely not. If you buy a car using money from a bank loan you have the option to sell it on, should you need to. PCP and HP financing doesn’t allow that. There are limits on the initial payment a customer can make, and how long they can make monthly payments. There are also restrictions on a vehicle’s mileage and the maintaining of its condition with PCP deals. 

The only real flexibility with PCP centres on whether the customer will return the car or not, something they can make a decision on when the times comes.


One thing that’s crystal-clear is that there’s a lot you need to know when you’re hunting for your next vehicle. And if you’re not furnished with all the details by your dealership or finance provider then you may have a case for claiming compensation for mis-selling.

And Barings Law can help.

Speak to a member of our team to see what we can do to help you reclaim your money. Give us a call on 0161 200 9960, send an email to us at or click the bottom-right icon to start a webchat.