A PCP (or Personal Contract Purchase) car finance is a popular solution to finance a new car.

It involves making monthly payments over a fixed period of time, typically two to four years, with an option to purchase at the end of the agreement.

With a PCP agreement, you typically pay a deposit upfront, followed by monthly payments. The monthly payments cover the depreciation of the car during the agreement period, rather than the full cost of the car. This makes the monthly payments lower than they would be on a traditional hire purchase agreement.

Things to know

It's important to note that with a PCP agreement, you do not own the car until the balloon payment has been made. 

PCP agreements can be a good option for those who want to drive a new car every few years and who are comfortable with the terms and conditions of the agreement.

At the end

At the end of the agreement, you have three options:

1. Return the car: You can simply hand the car back to the dealership and walk away, provided you have met the agreed mileage and condition requirements.

2. Keep the car: You can choose to pay a final lump sum, known as a balloon payment, to own the car outright. This sum is agreed at the start of the agreement and is based on the predicted depreciation of the car over the period of the agreement.

3. Trade in the car: You can choose to use any equity in the car as a deposit towards a new car and take out a new PCP agreement.