PCP Car Finance
Personal Contract Purchase keeps your monthly payments lower by deferring part of the car's value into an optional final payment at the end of the agreement. Hero arranges PCP with terms up to 5 years, longer than most of the market offers, which brings the monthly figure down further still. Seeing what you can afford starts with a soft search, so there is no impact on your credit score while you weigh up your options.
What is PCP car finance?
PCP stands for Personal Contract Purchase. Like HP, you pay an optional deposit followed by fixed monthly payments. The difference is that your monthly payments do not cover the full value of the car. A chunk of the value is set aside as an optional final payment, often called the balloon, which falls due at the end of the term. Because the monthly payments only cover the difference between the car's price and that final payment, they are noticeably lower than HP payments on the same car. The balloon is calculated at the start of the agreement based on what the car is expected to be worth at the end, known as the guaranteed minimum future value. That figure is fixed in the agreement, so you know from day one exactly what keeping the car would cost.
Your three choices at the end of a PCP
Nothing has to be decided until the end of the term. Most people make the call based on what the car is worth against the balloon at the time.
- Pay the balloon and keep the car. Ownership transfers to you, the same end point as HP.
- Hand the car back and walk away, provided it is within the agreed mileage and in fair condition. Nothing more to pay.
- Part exchange it. If the car is worth more than the balloon, the difference is equity, and that equity becomes the deposit on your next agreement.
How PCP works at Hero
Hero searches a panel of lenders for the PCP agreement that fits, then supplies the car from hundreds of vehicles in stock at Oakwood Motor Company group across Bury and Chorley, with delivery available nationwide. With 5 year terms available, the monthly payment can be stretched further than the 36 or 48 month agreements most providers default to, which puts newer and better cars inside more budgets. The application starts with a soft search eligibility check, no impact on your credit score, and the lender only runs a hard search if you decide to go ahead with an offer. The car is chosen before documents are issued, since a PCP agreement is written against a specific vehicle.
PCP and mileage
PCP agreements include an annual mileage allowance, agreed at the start. The allowance matters because the balloon is based on the car's predicted value, and mileage is the biggest factor in that prediction. Exceeding the allowance triggers a pence-per-mile charge if the car is handed back at the end. If you keep the car or part exchange it, excess mileage charges generally do not apply in the same way, since you are not returning the vehicle. Be realistic about your mileage at the start: an honest allowance costs slightly more per month and saves a much bigger correction later.
Is PCP right for you?
PCP suits you if
- You want the lowest monthly payment on a given car.
- You like the idea of changing your car every few years.
- You want flexibility at the end rather than committing to ownership now.
- Your annual mileage is steady and predictable.
HP might suit you better if
If you would rather own the car outright, HP car finance is the alternative, with terms up to 60 months.
- You want to own the car outright with no final payment.
- You drive high or unpredictable mileage.
PCP with bad credit
PCP is available to applicants with an imperfect credit file, and Hero's panel includes lenders who specialise in exactly that. The monthly payment advantage of PCP can matter even more when affordability is the deciding factor in an approval. The eligibility check shows where you stand without touching your credit score.
Frequently asked questions
The balloon is the optional final payment that falls due at the end of a PCP agreement. It represents the part of the car's value your monthly payments did not cover, fixed at the start based on the car's predicted end-of-term value. Pay it and the car is yours, or hand the car back and the balloon never has to be paid.
Yes. You can request a settlement figure at any time, which covers the outstanding balance including the balloon. If the car is worth more than the settlement figure, the difference is yours, usually rolled into the next agreement as deposit.
Hand it back and walk away. That is the protection built into PCP: the end value is guaranteed in the agreement, so the risk of the car being worth less than predicted sits with the lender, not with you. If the car is worth more, the surplus is your equity.
No. No deposit PCP is available, though a deposit lowers the monthly payment and can improve the rate offered. Your current car can serve as the deposit through part exchange.
With leasing (also called PCH) you rent the car for the term and always hand it back, with no option to buy. With PCP you have the choice to own the car at the end by paying the balloon. PCP also builds the possibility of equity, which leasing never does.
Ready to get started?
See what you can afford with a soft search, no impact on your credit score, or model the monthly payments first with the calculator, including what a 5 year term does to the figure.
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