Personal Contract Purchase (PCP) accounts for around 80% of new car finance in the UK. The low monthly payments are appealing — but PCP agreements involve a large 'balloon' final payment (the Guaranteed Minimum Future Value), strict mileage limits, and wear-and-tear standards that can create significant unexpected costs. The FCA has also investigated PCP commission practices, resulting in landmark rulings affecting millions of agreements.
What is a PCP Agreement?
In a PCP agreement, you pay a deposit plus monthly instalments for a fixed term (typically 24–48 months), but you're not paying off the full vehicle value. At the end, you have three options: pay the GMFV (the balloon payment) to own the car, hand the car back (if in acceptable condition and within mileage), or part-exchange the car using any equity. The agreement is regulated by the Consumer Credit Act 1974, which gives you important protections.
Red flags to watch for
Excess mileage charges (typically 5–10p per mile) can add hundreds or thousands to your end-of-term cost. If the agreed mileage is lower than your genuine annual usage to get the monthly payment down, you're building in a future cost.
Under section 99 of the Consumer Credit Act 1974, you have the right to voluntarily terminate a PCP agreement once you've paid 50% of the Total Amount Payable (including the balloon). Many dealers fail to explain this. You should know this right exists before signing.
If the agreement allows the finance company to assess condition and deduct costs from the GMFV — rather than using an independent standard — you have little recourse if the assessment is disputed.
The FCA's January 2021 ban on discretionary commission arrangements (DCAs) and subsequent Court of Appeal ruling (2024) found that undisclosed commissions may have been unlawful. Check whether your agreement (particularly pre-2021) involved a DCA — if so, you may be entitled to compensation.
PCP advertisements often quote representative APRs that don't reflect the rate you'll actually pay. Your agreement must state the Total Amount Payable — compare this to the car's list price to understand the true cost of financing.
Your legal rights
PCP agreements are regulated by the Consumer Credit Act 1974. You have a right to a copy of the agreement before and after signing. Under s.99 CCA 1974, you can voluntarily terminate once 50% of the Total Amount Payable has been paid (you may owe a top-up if you haven't reached 50%). Under s.75 CCA 1974, the finance company is jointly liable with the dealer for misrepresentation or breach of contract. If the dealer mis-sold the finance product (including through undisclosed commissions), you may have a claim through the Financial Ombudsman Service. The FCA's Financial Services and Markets Act 2000 applies to all credit brokers.
Questions to ask before you sign
- 1What is the annual mileage allowance and what is the pence-per-mile excess charge?
- 2What is the Total Amount Payable over the full term, including all fees?
- 3What is the Guaranteed Minimum Future Value (balloon payment) at the end of the term?
- 4Is there a commission being paid to the dealer or broker, and how much is it?
- 5What condition standard will be applied if I return the vehicle at the end of the term?
Disclaimer: This guide is for educational purposes only and does not constitute legal advice. Contract law varies by jurisdiction and individual circumstances. Always consult a qualified legal professional before making decisions based on this information.