Is PCP Car Finance a Good Idea?

PCP at a Glance in 2026

Personal Contract Purchase remains the UK’s go-to way to drive a new car with manageable monthly payments. Around nine in ten new cars bought on finance by personal consumers now use PCP, up sharply from levels seen a decade ago. Total borrowing on cars has swelled to nearly £40 billion, reflecting how embedded vehicle finance has become in British households. For many, PCP’s appeal is straightforward: you pay a deposit, make fixed monthly payments for two to four years, then decide whether to return the car, pay a final balloon to keep it, or part-exchange.

Understanding APR is not just about percentages - it is about what you will pay in real terms. Typical APRs for good credit currently sit around 6-9%, climbing to 10-19% for average or weaker credit. In a year where budgets remain under pressure, this difference can make or break affordability. PCP often beats Hire Purchase on monthly cost, but if you plan to keep the car long term, the total paid can be higher once that balloon payment is counted.

There is also context beyond your driveway. The surge in PCP has fed the used market with frequent trade-ins, which can pressure resale values and, at times, shape lenders’ risk and pricing. Meanwhile, a major mis-selling issue has come to a head. The FCA has ended its complaint pause and is launching a redress scheme in 2026 for historic deals where undisclosed commissions may have inflated costs. Average compensation has been signposted in the hundreds of pounds, underscoring the need to read the small print and keep documents.

Bottom line: PCP can be a smart route to a newer car and predictable payments, but it demands clear-eyed budgeting and an exit plan that suits how you actually use and keep a car.

Tip: If you are unsure you will want to own the car, value PCP for access and flexibility rather than long-term ownership.

Who This Suits

If you like driving a newer car every few years, prefer lower monthly payments, and want options at the end of the term, PCP fits well. It is also attractive if you anticipate manufacturer deposit contributions that reduce upfront cost. However, if you rack up high annual mileage, or you plan to hold onto the car for many years, consider whether the balloon payment and condition charges could outweigh the early savings. Those with steady income, good credit, and predictable mileage will find PCP easier to budget for. If your credit is average or rebuilding, factor in that higher APRs can erode the monthly advantage.

Your Finance Choices

1. PCP - lower payments, optional balloon to own, mileage/condition limits.

2. Hire Purchase (HP) - higher monthly cost, ownership at the end once paid.

3. Personal Loan - own the car outright, no mileage caps, rate depends on credit.

4. Lease/Personal Contract Hire (PCH) - rental model, typically no option to own.

5. Cash Purchase - no interest, full control, highest upfront commitment.

Cost, Impact, Returns, Risks

Can You Get It? Key Eligibility Points

Lenders assess affordability, credit history, and stability. Expect a credit check, proof of income, address history, and ID. A strong credit profile can unlock APRs near the lower end of the current range and improve the choice of terms. If your credit is average, you may still be approved, but pricing is likely to be higher and the offer more restrictive. Mileage expectations also matter - if you regularly exceed 12,000 miles a year, set a realistic limit upfront to avoid end-of-term costs.

Kandoo works with a panel of UK lenders, which can improve the chance of finding a suitable offer without you applying multiple times. You will still need to pass standard affordability checks and agree to the lender’s terms. If you have variable income or recent credit blips, prepare bank statements and explanations that show stability. Finally, think about your exit: returning the car is simplest if you keep it in good condition and within mileage. If owning is your aim, budget for the balloon payment from the start.

From Start to Keys: Step-by-Step

1. Set budget and mileage based on real use.

2. Check credit file and tidy any errors.

3. Compare APRs, terms, and deposit options.

4. Confirm Guaranteed Future Value and mileage cap.

5. Review fees, commissions, and early exit rules.

6. Sign agreement and arrange insurance and VED.

7. Make payments on time and monitor mileage.

8. Choose: return, part-exchange, or pay balloon.

The Trade-offs in Black and White

Before You Commit: Watch-outs

Read every page of the agreement, paying close attention to APR, optional final payment, mileage charges, and early termination rules. Confirm whether any commission is paid to the broker and how it influences the rate. Keep copies of all documents and communications. With the FCA’s 2026 redress scheme addressing historic mis-selling of PCP commissions, retaining paperwork can support any future claim. Consider how stable your income is for the full term and whether your mileage pattern could change with a new job or move. If you are leaning towards ownership, compare the total cost of PCP plus balloon against HP and a personal loan. A few percentage points on APR or a misjudged mileage cap can outweigh headline monthly savings.

What Else Could Work?

1. Hire Purchase - straightforward path to ownership with fixed payments.

2. Personal Loan - you own from day one, no mileage caps.

3. Lease/PCH - lower hassle if you never plan to own.

4. Nearly-new or used purchase - reduce depreciation hit and payments.

5. Cash top-up plus smaller finance - lower interest and faster exit.

Frequently Asked Questions

Q: Is PCP cheaper than HP? A: Monthly, usually yes. Over the full term including the balloon to keep the car, PCP can cost more than HP. If you plan to own, compare totals carefully.

Q: What APR should I expect? A: Strong credit often sees 6-9%. Average or weaker profiles may face 10-19%. Always check the representative example and your personalised rate before committing.

Q: What happens if I exceed the mileage? A: You will pay a per-mile excess when returning the car. Set a realistic limit at the start and monitor mileage throughout the term to avoid surprises.

Q: Can I end a PCP early? A: Yes, but settlements and potential negative equity can apply. Review the voluntary termination and early settlement clauses before you sign.

Q: What is the 2026 mis-selling redress about? A: The FCA is addressing historic PCP agreements where undisclosed commissions may have raised costs. If eligible, average compensation could be several hundred pounds. Keep your paperwork and check guidance.

Q: Will I own the car on PCP? A: Not during the term. You can choose to pay the optional final payment to own it at the end, or return or part-exchange instead.

How Kandoo Can Help

Kandoo is a UK-based retail finance broker that compares options from a panel of lenders, helping you find a PCP or alternative that suits your budget and mileage. We focus on clarity, transparent terms, and quick decisions, so you can weigh payments, APRs, and end-of-term choices with confidence. Ready to explore your numbers? Start your personalised quote today.

Important Information

This guide is for information only and does not constitute financial advice. Eligibility and rates depend on your circumstances and the lender’s criteria. Always read the agreement, consider affordability, and seek independent advice if unsure.