Personal Contract Purchase
- Rated 4.9/5 on Feefo
- FCA authorised, FRN 315268
- BVRLA leasing broker member
- Part of Global Vehicle Group
Personal contract purchase is a credit agreement that finances the value a car loses, not the whole car. You put down a deposit, pay monthly for an agreed term and mileage, and at the end you either pay a large final payment to own it, hand it back, or part-exchange. It is regulated credit, which means you have statutory protections a lease does not give you. It also has two features that are widely misunderstood, and both are on this page.
Key facts
- PCP is a regulated credit agreement under the Consumer Credit Act. Interest applies and an APR will be shown in your documentation.
- Your monthly payments cover depreciation and interest, not the full price of the car.
- The Guaranteed Minimum Future Value, also called the balloon or GMFV, is the lender's estimate of the car's worth at the end. You only pay it if you want to keep the car.
- "Guaranteed" means the risk is the lender's. If the car is worth less than the GMFV at the end, hand it back and you owe nothing further on the finance.
- Voluntary termination is 50% of the money, not 50% of the time. The 50% is of the total amount payable including the balloon, so you usually reach it late in the agreement.
- There is an annual mileage limit. Excess miles are charged at a rate set out in your agreement.
- You can settle early at any point. The lender must give you a settlement figure with a rebate of future interest.
- We receive a commission from the lender when an agreement completes. You can ask us the amount before you commit.
How PCP works
You pay a deposit, then fixed monthly payments over a term of usually two to four years, against an agreed annual mileage. At the outset the lender sets a Guaranteed Minimum Future Value, which is its estimate of what the car will be worth when the agreement ends.
Your monthly payments cover the difference between what the car costs now and that future value, plus interest. That is why PCP monthlies are lower than hire purchase on the same car. You are financing the drop in value rather than the whole vehicle.
When the term ends you have three choices, and you do not have to decide until then.
Your three choices at the end
Hand the car back. You walk away with nothing further to pay on the finance, subject to fair wear and tear and any excess mileage. This is where the guarantee matters, and we explain it properly below.
Pay the balloon and keep it. You pay the GMFV, either from savings or by refinancing it, and the car is yours.
Part-exchange. If the car is worth more than the balloon, that difference is equity and can go towards your next deposit. If it is worth less, you would need to cover the shortfall or hand the car back instead.
What "guaranteed" in Guaranteed Minimum Future Value actually means
This is the most valuable feature of a PCP and it is routinely undersold.
The lender sets the GMFV at the start using residual value data. That figure is guaranteed by the lender, not by you. If the used market moves against that car over your term, and it is worth less than the GMFV when the agreement ends, you simply hand it back. You do not owe the difference.
That is a real protection, and it is worth more in some markets than others. Where used values have moved sharply, drivers who financed on PCP handed cars back and walked away, while drivers who bought outright carried the loss themselves.
The guarantee applies at the end of the agreement, on the terms in your contract. It does not protect you if you want to get out early, which brings us to the part people get wrong.
Voluntary termination: 50% of the money, not 50% of the time
Under sections 99 and 100 of the Consumer Credit Act 1974, you have a statutory right to end a regulated PCP or hire purchase agreement early, hand the car back, and owe nothing further on the finance. It is a legal right, not something the lender chooses to allow.
The condition is that you have paid at least 50% of the total amount payable. And here is the part that catches people:
On a PCP, the total amount payable includes the balloon. The GMFV is often a very large share of the total, so paying half the monthly instalments does not get you to half the money. In practice, many PCP customers do not reach the 50% point until they are 65% to 75% of the way through the term, and sometimes not until the final months.
So somebody who runs into difficulty at month eighteen of a four-year agreement, looks up voluntary termination and assumes they qualify because they are halfway through, will usually find they are nowhere near.
Two things worth knowing. You can still voluntarily terminate before reaching 50% if you pay the shortfall to get there, and where the alternative is continuing an unaffordable agreement, that often costs less overall. And voluntary termination protects you from future instalments, but not from charges for damage beyond fair wear and tear or excess mileage already accrued. Those remain payable.
Check the total amount payable figure on your own agreement and do the arithmetic before assuming either way. You may be closer than you think, or a good deal further away.
Negative equity, and when it actually matters
Negative equity means your outstanding finance balance is higher than the car is currently worth. On a PCP it matters far less than people fear, but it matters in specific circumstances.
At the end of the agreement it is not your problem. That is exactly what the guarantee in the GMFV is for. Hand the car back.
It matters if you want out early. An early settlement figure includes the remaining balance, so if the car is worth less than that figure you would need to cover the gap yourself.
It matters if you want to part-exchange early. There is no equity to put towards the next car, and you may be asked to roll the shortfall into a new agreement.
On that last point, one piece of straightforward advice: rolling negative equity into a new agreement compounds it. You end up paying for a car you no longer have, on top of the one you do. If you find yourself in that position, it is usually better to see the agreement through to the end and use the hand-back, or settle the shortfall in cash, than to carry it forward. We will tell you that even when it means we do not write a deal today.
Mileage, and the mistake almost everyone makes
Your agreement sets an annual mileage, and the GMFV is calculated on it. A higher contracted mileage means a lower future value, which means higher monthly payments. That is the direct trade.
The temptation is to declare a low mileage to bring the monthly down. It is the single most common PCP mistake. Excess miles are charged at a rate written into your agreement, and a commute you have under-declared over three or four years adds up quickly.
Be honest with the number. A forty-mile round-trip commute five days a week is already around ten thousand miles a year before a single weekend trip. We will quote at more than one mileage so you can see the difference before you decide.
PCP compared with the alternatives
| PCP | Personal contract hire | Hire purchase | |
|---|---|---|---|
| Type of agreement | Regulated credit | Consumer hire | Regulated credit |
| Can you own it? | Optional, pay the balloon | No | Yes, automatically |
| Voluntary termination | Yes, at 50% incl. balloon | No | Yes, at 50%, reached sooner |
| Monthly cost | Lower than HP | Usually lowest | Highest |
| Mileage limit | Yes | Yes | No |
| Protected from a weak used market | Yes, via the GMFV | Yes, you never own it | No, the car is yours |
| Benefit from a strong used market | Yes, as equity | No | Yes, it is yours |
| Road tax | First year only | Whole term | First year only |
See personal contract hire and hire purchase for the detail on each.
How we are paid, and why we are telling you here
Intelligent Vehicle Finance is a credit broker, not a lender. We receive a commission from the lender when an agreement completes. The amount can vary depending on the product and the provider.
You have the right to ask us what commission we will receive before you commit to anything, and we will tell you. We would rather you asked.
PCP is a regulated credit agreement, and commission disclosure on regulated credit is held to the highest standard by the Financial Conduct Authority. That is why this sits in the middle of the page rather than in small print at the bottom.
When PCP suits you, and when it does not
It suits you if you want the option to own the car but do not want to commit to it now, you want lower monthly payments than hire purchase, you value the protection of the guaranteed future value, or you want the flexibility that voluntary termination gives you later in the agreement.
It does not suit you if you do not care about owning the car, in which case personal leasing is usually a lower fixed cost with road tax included for the whole term. Or if you are certain you want to own it, in which case hire purchase gets you there without a balloon to find at the end. Or if your mileage is high and unpredictable, because hire purchase has no mileage limit at all.
If your circumstances change
Contact the lender early, before missing a payment rather than after. Firms regulated by the FCA are required to treat customers in financial difficulty fairly, and there is far more they can do at the start of a problem than at the end of one.
Your options may include an early settlement figure, voluntary termination if you have reached or can reach the 50% point, or a payment arrangement. Free and independent help is available from MoneyHelper and Citizens Advice, neither of whom is trying to sell you a car.
How Intelligent Vehicle Finance arranges it
Intelligent Vehicle Finance is a credit broker. We do not lend. We take what you need, compare it across our panel of lenders, and set the options out in writing so you can compare properly.
On a PCP the numbers that decide whether it is a good agreement are the guaranteed future value, the contracted mileage and the total amount payable. A lender who sets an optimistic future value shows you an attractive monthly figure and leaves you with a larger balloon to deal with later. We will show you both and say where we think the assumption is generous.
Intelligent Vehicle Finance is also part of Global Vehicle Group, whose brands have funded more than 70,000 vehicles, so behind the personal service sits genuine group scale.
Speak to us on 01752 429950, or request a callback.
Frequently asked questions
When can I actually use voluntary termination on a PCP?
Once you have paid at least 50% of the total amount payable, under sections 99 and 100 of the Consumer Credit Act 1974. The critical point is that on a PCP the total amount payable includes the balloon, and because the balloon is a large share of that total, most people do not reach 50% until roughly 65% to 75% of the way through the term, sometimes later. Voluntary termination is 50% of the money, not 50% of the time. Check the total amount payable on your own agreement and do the arithmetic rather than assuming.
What does the guaranteed future value actually guarantee?
It guarantees that if the car is worth less than that figure when your agreement ends, you can hand it back and owe nothing further on the finance. The risk on the used value sits with the lender, not with you. That protection applies at the end of the agreement on the terms in your contract. It does not protect you if you want to exit early, because an early settlement figure is calculated differently.
What happens if I am in negative equity?
At the end of the agreement it does not matter, because you can hand the car back under the guaranteed future value. It matters if you want to exit early or part-exchange before the end, because you would need to cover the gap between the settlement figure and what the car is worth. Rolling that shortfall into a new agreement compounds it and leaves you paying for a car you no longer have, so it is usually better to see the agreement out or settle the shortfall in cash.
Can I settle a PCP early?
Yes. You can ask the lender for an early settlement figure at any point, and it must include a rebate of future interest. Whether settling makes sense depends on whether the car is worth more or less than that figure. If you are close to the 50% threshold it is worth comparing early settlement against voluntary termination before deciding.
Does voluntary termination cover excess mileage and damage?
No. Voluntary termination releases you from future instalments, but you can still be charged for damage beyond fair wear and tear and for excess mileage already accrued. This is a common point of dispute, and lenders will generally pursue those charges where the terms were clearly set out in your agreement. Budget for them rather than assuming your liability stops at 50%.
What happens if I go over my agreed mileage?
You pay an excess mileage charge at the rate set out in your agreement. The mileage you contract for also determines the guaranteed future value, so declaring a low mileage to reduce the monthly payment tends to cost more overall. Base the figure on what you genuinely drive and ask us to quote at more than one level.
Is PCP regulated, and what protection does that give me?
Yes. PCP is a regulated credit agreement under the Consumer Credit Act 1974. That gives you protections a lease does not, including the right to voluntary termination at the 50% point, the right to an early settlement figure with a rebate of future interest, and protection against repossession without a court order once you have paid a third of the total amount payable. It also means commission disclosure is held to the highest standard.
Does Intelligent Vehicle Finance receive commission on a PCP?
Yes. We are a credit broker, not a lender, and we receive a commission from the lender when an agreement completes. The amount can vary depending on the product and the provider. You have the right to ask what we will receive before you commit, and we will tell you.
This page is general information about how personal contract purchase works and is not advice. Personal contract purchase is a regulated credit agreement. The terms of your own agreement, including the annual percentage rate, the total amount payable, the guaranteed minimum future value, excess mileage rates and any settlement figure, are set by the lender and will be set out in your documentation before you commit. Please read it. Intelligent Vehicle Finance is a credit broker, not a lender, and receives a commission from the lender or funder when an agreement completes. A trading style of XLCR Vehicle Management Ltd, authorised and regulated by the Financial Conduct Authority (FRN 315268). Subject to status and availability. Reviewed by Stacey Smith, Brand Director, Intelligent Vehicle Finance. Last updated: July 2026.