PCP car finance calculator

How PCP car finance works

PCP stands for Personal Contract Purchase. It's the most popular way to finance a new car in the UK. Around 80% of new cars are now sold on some form of finance, and PCP accounts for the majority of those deals. The reason it's so popular is simple: it keeps monthly payments low by deferring a large chunk of the cost to the end of the agreement.

Here's the basic structure. You pay a deposit (typically 10% of the car's price). Then you make fixed monthly payments for a set term, usually 36 or 48 months. At the end of the term, there's a large "balloon payment" (also called the GMFV or Guaranteed Minimum Future Value). This balloon is the predicted value of the car when the agreement ends.

You're only paying interest on the difference between the car's price and the balloon, minus your deposit. That's why payments are lower than HP (hire purchase), where you pay off the entire cost.

The numbers: average PCP deal in 2026

The average new car in the UK now costs around £38,000. A typical PCP deal on a £25,000 car might look like this:

Element	Amount
Car price	£25,000
Deposit (10%)	£2,500
Amount financed	£22,500
Balloon / GMFV (50%)	£12,500
Amount you pay monthly	£10,000 + interest
APR	7.9%
Term	48 months
Monthly payment	≈ £280

Over 48 months, you'll pay approximately £13,440 in monthly payments. Add your £2,500 deposit, and you've spent £15,940 before the balloon. If you want to keep the car, you'll pay the £12,500 balloon too, bringing total cost to £30,940 for a £25,000 car. The £5,940 difference is your interest cost.

Your three options at the end

When a PCP agreement ends, you have three choices:

• Pay the balloon and own the car outright. Makes sense if the car is worth more than the balloon amount.
• Hand the car back. Walk away with nothing to pay (assuming the car meets condition standards and you haven't exceeded the mileage limit).
• Part-exchange into a new PCP deal. If the car's market value exceeds the balloon, the "equity" becomes your deposit on the next car.

About 45% of PCP customers trade in for a new deal. Around 30% hand the car back. Only 25% pay the balloon and keep the car. Dealers love PCP because it brings customers back every 3 to 4 years.

APR: what you'll actually pay

Manufacturer-subsidised PCP deals can offer rates as low as 0% to 3.9% APR. These are loss-leaders to shift specific models. Non-subsidised rates from dealer finance typically run between 7% and 9% APR in 2026. If your credit score is below average, expect 12% to 18%.

For context, a personal loan from a bank for £20,000 over 4 years typically charges 5% to 7% APR. So if you can get approved for a personal loan, it's often cheaper than non-subsidised PCP. But you lose the flexibility of handing the car back.

PCP vs HP vs personal loan

Factor	PCP	HP	Personal loan
Monthly payment	Lowest	Higher	Highest (shorter terms)
Total cost	Medium-high	Medium	Lowest (if good rate)
Own the car?	Only if you pay balloon	Yes, at end of term	Yes, immediately
Mileage limits	Yes (e.g. 8,000-12,000/yr)	No	No
Can hand back?	Yes	Yes (after 50% paid)	No (you own it)
Typical APR	0-9%	5-9%	5-7%

Mileage limits and excess charges

Every PCP deal specifies an annual mileage allowance, typically 8,000, 10,000, or 12,000 miles per year. If you exceed it, you'll pay an excess mileage charge at the end. This is usually between 5p and 10p per mile over the limit.

On a 4-year deal with a 10,000-mile annual limit, you're allowed 40,000 miles total. If you hand the car back at 52,000 miles, that's 12,000 miles over. At 8p per excess mile, you'd owe £960. Some people get caught out badly here. The FCA found that 30% of PCP customers exceed their mileage allowance.

What is GMFV and how is it set?

The Guaranteed Minimum Future Value (GMFV) is what the finance company guarantees your car will be worth at the end of the agreement. They set it conservatively based on projected depreciation, mileage, and model. It's typically 40% to 55% of the original price for a 3-year deal, or 30% to 45% for a 4-year deal.

If the car's actual market value at the end is higher than the GMFV, you have positive equity. That equity becomes your deposit for the next car. If the market value is lower (rare, because GMFVs are set conservatively), you can simply hand the car back and the finance company absorbs the loss.

Negative equity: the hidden risk

During the PCP term (not at the end), you can end up in negative equity. This happens when you owe more on the finance than the car is currently worth. It's most common in the first 12 to 18 months of a deal, because new cars depreciate fastest in year one (typically 15-20% in the first year).

Negative equity becomes a problem if you want to change cars early or if the car is written off in an accident. Standard car insurance pays the market value of the car, not the finance balance. Gap insurance covers the difference, and costs around £150 to £300 for the full term.

For a full explanation of how PCP works, the risks to watch for, and when it's the right choice, read our complete guide: PCP car finance explained.