How does PCP finance work?

PCP (Personal Contract Purchase) is a type of car finance where you pay a deposit, then make monthly payments for a set term (typically 2-4 years). At the end, you have three options: hand the car back with nothing more to pay, pay the balloon payment (GMFV) to own the car, or use any equity as a deposit on a new PCP deal.

What is the balloon payment / GMFV?

The GMFV (Guaranteed Minimum Future Value) or balloon payment is the predicted value of the car at the end of the PCP term. It is set by the finance company at the start. If you want to own the car, you pay this amount at the end. If the car is worth more than the GMFV, you have positive equity you can use as a deposit on your next car.

Why are PCP payments lower than HP?

PCP payments are lower because you are only paying off the depreciation (the difference between the price and the GMFV) plus interest, not the full price of the car. With HP (Hire Purchase), you pay off the entire price so monthly payments are higher, but you own the car at the end.

What happens if I exceed the mileage limit?

PCP deals include a mileage allowance (typically 8,000-12,000 miles per year). If you exceed it, you pay an excess mileage charge when you hand the car back, typically 5-10p per mile. On a 3-year deal, exceeding by 5,000 miles could cost £250-£500. This does not apply if you pay the balloon to keep the car.

PCP can be good value if you want a newer car every few years with low monthly payments. However, you pay more interest overall than HP because interest is charged on the full amount (including the balloon). If you always hand the car back, you are essentially renting it. PCP works best when the GMFV is set conservatively, leaving you equity at the end.

CarCalcs

PCP Calculator — Personal Contract Purchase

Calculate PCP monthly payments, total cost, and the optional final balloon payment for your car finance deal.

Car Price

Deposit

APR

Term

Balloon / GMFV

Annual Mileage

How We Calculate This

How PCP Payments Are Calculated

PCP splits the cost into three parts:

Deposit: Your upfront payment
Monthly payments: Cover the depreciation plus interest
Balloon (GMFV): The predicted future value, payable only if you keep the car

The Formula

Interest is charged on the full financed amount (car price minus deposit). The monthly payment covers the difference between the financed amount and the GMFV, plus interest on the whole balance.

Monthly payment = (Finance amount x r x (1+r)^n - GMFV x r) / ((1+r)^n - 1)

Where r = monthly rate, n = number of months

Frequently Asked Questions

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Last updated: February 2026

All calculations are estimates. Actual figures may vary based on driving conditions, vehicle specifications, and other factors.