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PCP finance is built on seven numbers. Enter them accurately and the calculator gives you a reliable monthly payment figure. The guide below explains what each field means and what to enter if you are unsure. Use it to compare scenarios: what happens if you increase your deposit, shorten the term, or choose a different mileage, before you speak to a lender.
Personal Contract Purchase (PCP) is the most widely used car finance product in the UK. Its appeal is straightforward: because monthly payments cover only the car's depreciation rather than its full value, the monthly cost is lower than an equivalent hire purchase or personal loan on the same vehicle. At the end of the agreement you have three options, not one, which means PCP suits buyers who want flexibility as well as affordability.
The structure of a PCP agreement has three components: the initial deposit, the monthly payments over the agreed term, and the final payment at the end. Understanding what drives each of those figures is what this section covers.
The balloon payment is the single most misunderstood element of PCP finance. It is formally called the Guaranteed Minimum Future Value, or GMFV. The lender sets it at the start of the agreement based on their prediction of what the car will be worth at the end of the term, given the agreed mileage and a normal standard of condition.
The word "guaranteed" matters to you as the buyer. If the car's actual market value turns out to be lower than the GMFV when you return it, the shortfall is the lender's responsibility, not yours. This is a significant difference from a standard personal loan, where depreciation risk sits entirely with the buyer.
On a car priced at £25,000, a GMFV of £10,000 means the monthly payments cover the £15,000 difference, plus interest on the financed amount. The higher the GMFV as a proportion of the purchase price, the lower the monthly payment, because less is being financed over the term.
Four variables determine the monthly payment on a PCP: the sum financed (car price minus deposit minus GMFV), the interest rate (APR), the term length, and the timing of interest compounding. A larger deposit, a higher GMFV, a lower APR, or a longer term will each reduce the monthly figure. They do not all reduce the total cost. A longer term reduces monthly payments but increases total interest. The calculator lets you test each variable independently before you commit to anything.
These are the two questions asked most frequently by people considering PCP for the first time. Both are worth answering directly.
PCP is not renting in the legal sense. You own the car throughout the agreement, the finance is secured against the vehicle as an asset, and you have the right to keep it at the end by paying the GMFV. What PCP shares with renting is the optional exit: at the end of the term, if you choose to walk away, the money you have paid does not give you ownership. That is a deliberate feature of the product, not a flaw. Buyers who intend to keep cars for ten or more years generally do better with hire purchase or a personal loan. Buyers who change their car every two to four years will often find PCP produces a lower total outlay over that cycle because they are not funding the full depreciation every time.
On total cost, the picture is more complicated than a simple comparison suggests. A PCP on a £22,500 car at a reasonable APR will cost more in total interest than a personal loan at the same rate, because you are paying interest on the GMFV portion for the full term even though you are not repaying it. However, a PCP at a manufacturer's subsidised rate, combined with a factory discount on the purchase price, can produce a lower total outlay than buying the equivalent used car privately with a bank loan at the standard consumer rate. The correct comparison is always total cost of credit on the specific deal in front of you, not PCP as a category against loans as a category.
The counter-intuitive answer, which confuses many buyers, is that a large deposit on a PCP is not always the right move. Every pound of deposit you put in reduces the sum financed, which reduces your monthly payment and the interest you pay on the financed portion. But you receive no return on money tied up in a depreciating asset. If you intend to return the car at the end of the term and have no equity interest in the vehicle, you are pre-paying for something you will not own. A deposit of zero on a PCP with a 0% or low APR, with the equivalent cash retained in savings, can be a more rational position than a large upfront payment. The calculator above lets you test what a £0 deposit does to your monthly figure versus what it does to your total cost. Run both numbers before deciding.
This is a legitimate concern, and one the GMFV structure exists to address. If the car's market value at the end of the agreement is less than the balloon figure, you hand it back and the lender absorbs the difference. You have no further liability. If the car is worth more than the balloon, you have positive equity: that surplus is yours. You can use it as a deposit on your next car, or pay the balloon and keep the vehicle for less than its market value.
Where buyers can run into difficulty is on agreements where the GMFV was set higher than a realistic residual value in order to reduce monthly payments. If you are considering any PCP, check the balloon figure against current market valuations for the same model, mileage and age at the end of the term. If the balloon is higher than the likely market value, you will have no equity and your options narrow to either paying to settle or handing the car back.
PCP and Hire Purchase (HP) are the two most commonly used finance products for buying a new car in the UK. Both involve fixed monthly payments and a deposit. The difference is in what those payments are covering and what happens at the end. Full details on each product are available in the Motor Source Group guides to PCP finance and Hire Purchase.
On a Hire Purchase agreement, your monthly payments repay the full value of the car, minus your deposit, plus interest. There is no balloon payment and no residual value calculation. At the end of the final payment, you own the car outright. The monthly cost is higher than PCP on the same vehicle and same term because you are clearing the entire financed amount rather than deferring a portion of it. HP is straightforward: pay it off, keep the car.
The reason PCP monthly payments are lower than HP on the same vehicle is the GMFV. On a PCP, a portion of the car's value (the guaranteed future value) is set aside as the final payment and not included in the monthly repayment schedule. You are paying interest on it throughout the term, but you are not paying it off month by month. This deferred structure reduces the monthly figure, sometimes considerably, but it does not reduce the total amount you are paying interest on.
As a worked example: on a £25,000 car with a £2,500 deposit and a £10,000 GMFV over 36 months at 7% APR, the PCP monthly payment is approximately £380. The HP monthly payment on the same figures, with no balloon, is approximately £690. The PCP monthly saving is real. The total cost difference depends on whether you pay the balloon or return the car at the end.
Yes, as a general principle, but the details matter. A PCP agreement does not require you to have the car serviced at a franchised dealer. The Consumer Rights Act means that independent servicing to the manufacturer's specification will not void your statutory warranty rights. Where it gets more complicated is manufacturer extended warranties: many of these do require main dealer servicing as a condition. If you are intending to hand the car back at the end of the term, there is also a practical argument for maintaining a full service history from a recognised dealer, as poor or incomplete history can affect what the lender accepts under the fair wear and tear return standard. Read your specific agreement carefully on this point.
For NHS staff, armed forces personnel, teachers, police, and emergency service workers, the economics of PCP shift materially compared to the standard retail position. The savings available through Motor Source Group are applied to the purchase price before the finance is structured. A discount of several thousand pounds on the purchase price reduces the sum financed, the total interest paid, and the monthly payment simultaneously. The result is a monthly figure on a brand new car, under full manufacturer warranty with roadside assistance included, that can compare favourably with what the same buyer would spend maintaining an older used car outside warranty at standard retail prices.
Motor Source Group specialises in exclusive new car pricing for people working in public service. The discounts are factory-direct and applied before any finance offer, so the saving affects the purchase price, not just the monthly payment. NHS staff have a dedicated portal with tailored deals across all major manufacturers.
We also provide exclusive pricing to a wide range of other eligible groups. If you fall into one of the categories below, you qualify for the same preferential rates.
If you work for the NHS, PCP is not your only route to a new car. Salary sacrifice schemes, leasing arrangements and outright purchase through the NHS discount programme each produce a different outcome in terms of monthly cost, tax efficiency, ownership, and flexibility. The right answer depends on how long you intend to keep the vehicle, whether you want ownership at the end, and how your employer's scheme is structured.
Salary sacrifice, for example, is deducted from your gross salary before income tax and National Insurance are calculated. That pre-tax structure means a higher earner can access a newer, better-specified car for a net monthly cost that is lower than the equivalent PCP payment on the same vehicle after tax. But salary sacrifice involves a long-term commitment, mileage restrictions, and a fixed return at the end. It is not right for everyone.
The comparison between these options is detailed and worth reading before you commit to any single route. The Motor Source Group guide covers the mechanics of each option, the tax implications, and the circumstances in which each one produces the best outcome for NHS employees specifically.
Read the full NHS finance comparison guideWe are proud to work in partnership with all NHS Trusts and several Health Care organisations to further support our NHS and Health Care professionals.
Find out more about these partnerships by clicking the logos below.
