Penbourne Vehicle Solutions

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How Personal Contract Purchase (PCP) Works

Personal Contract Purchase (PCP) is a type of vehicle finance agreement for personal customers looking to fund a new or used vehicle in a manageable way

The monthly payments are not subject to VAT, however if you do take out the optional service package then you will have to pay VAT on the service costs.

Let's imagine you sign up for a PCP over three years. The car costs £20,000 and the finance company calculates that the car will be worth at least £8,000 after three years. Here is how that would look...

• You pay a 10% deposit, eg, £2,000 with a loan for the rest, so £18,000.
• You then owe £18,000. Though, as it's been agreed that the car will be worth £8,000 at the end, you only need to repay £10,000 (plus the interest on the entire £18,000) over the three year period.
• At the end of the agreement, you either pay the final £8,000 to keep the car or you can choose to hand the car back if the market value for the car is less than 8,000 or you can part exchange the car for another car using anything over the £8,000 as a deposit towards your new car.

What happens at the end of the finance deal?

We mentioned that you can buy the car at the end of the deal, but you don't have to - in reality you have three options:

1. Buy the car by paying the balloon payment. Pay this then you will own the car outright. Do note that most finance companies charge an added fee if you buy the car - this covers admin costs to transfer the car. It can be up to £500 but is usually lower, around £100 is standard.

2. Get a new car. This is the most common option for people taking a PCP deal. Usually at the end of a PCP deal, the car will be worth slightly more than the balloon payment. And if this is the case, your dealer will usually ask if you want to use that 'equity' as a deposit on a new PCP deal on a brand new car. For example, if the car’s actual value at the end of the deal in the example above was £9,000 and the balloon payment is £8,000, you would have the difference of £1,000 that you could use as a deposit to roll into another deal.

Many go for another PCP, but you don’t have to. Sadly, you can't take the extra as cash - unless you buy the car and then sell privately (or get agreement from the finance company to sell it & then pay off the finance).

You don’t have to worry about the car being worth less than the balloon payment - that is if it's lost more value than was expected at the start of the deal. If that happens, the sensible course is just to hand the car back - the finance company takes the hit.

3. Hand the car back and walk away. This means you have nothing more to pay, though you could face damage and over-mileage charges...

What charges could I face if I hand the car back/trade it in?

You could face charges if you hand the car back, whether that's trading it in, or just handing it back and walking away. There are two main types of charges, but both are avoidable:

• Over-mileage charges. At the start of a PCP deal, you will be asked to specify how far you will drive the car each year. This is so the dealer can accurately assess the car's worth at the end of the deal to set its future value. A car that has done 10,000s of miles will be worth a lot less than a car that's only been used infrequently.

It's important to be as accurate as you can, as if you go over the agreed mileage limit, the finance company can charge for every mile you are over, often around 10p per mile. Be careful as this can soon tot up. For example, at that price, an extra 1,000 miles would cost you £100.

• Damage charges. Just like when you rent a car, the finance company will check it for damage when you hand it back. Normal wear and tear is acceptable, but the car needs to be in a sale-able condition, which means you will likely be asked to pay to put right any large scratches or damage anywhere on the car.

You can avoid these charges by agreeing a sensible mileage and taking good care of the car. If there's damage, it's worth going to an approved service centre to see if it'll cost less to fix than the finance company will charge - it may be worth getting it fixed yourself.


  • Low initial payment 
  • Fixed monthly payments 
  • You may be able to refinance the balloon payment 
  • No depreciation concerns if you wish to walk away at the end 
  • Maintenance and servicing can be included 
  • Fixed balloon or guaranteed future value to purchase payment when you first take out the contract 
  • Cost effective 
  • Can be used to finance new or used vehicles


  • You will have to make a decision at the end of the contract as to whether you wish to sell the vehicle, return it or Keep it - this is often seen as an advantage to most people. 
  • You must have fully comprehensive vehicle insurance

More Information on Personal Contract Purchase:

PCP is ideal for any individual who would like options at the end of their finance agreement. PCP customers make an initial payment when they first take out the contract, then pay fixed monthly payments and finally have an Optional Final Payment (OFP) at the end at the end of the contract which is also referred to as the GFV (Guaranteed Future Value).

You can trade in or sell your vehicle at a dealership and take another vehicle from them. If the trade in value is larger than the OFP you will be able to use the difference towards a deposit on a new vehicle. Or, you can simply return the vehicle to the funder, as long as you have not exceeded the mileage and the vehicle is in an appropriate condition for its age there will be no charge. Finally, you can keep the vehicle either by paying the OFP in full or you will find that most companies offer the opportunity to re-finance the OFP.

Contact us

Email :

Telephone : 01902 290311

Company Address :
Penbourne Vehicle Solutions
c/o Move Vehicle Leasing Limited
International House
24 Holborn Viaduct

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Penbourne Vehicle Solutions is a trading name of Move Vehicle Leasing Limited

Move Vehicle Leasing Limited are a credit broker and not a lender, we are authorised and regulated by the Financial Conduct Authority. Registered No : 734782

Registered in England & Wales with company number : 09729677 | Data Protection No : ZA171391 | VAT No : 235 3484 09

Registered Office : Move Vehicle Leasing Limited, International House, 24 Holborn Viaduct, London, EC1A 2BN

Disclaimer: All vehicle images and descriptions are for illustration and reference purposes only, all vehicle leases are subject to credit approval and subject to change at any time. E&OE.

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