What is a Personal Contract Purchase (PCP)?

What it is

Personal Contract Purchase (PCP) is a regulated credit agreement that splits the cost of a car into three parts. You put down a deposit, or part-exchange your old car, to cover the first slice. Your monthly payments over a typical two to four year term cover the depreciation in the middle — the gap between the car’s value when you drove it off the forecourt and what the lender expects it to be worth at the end. The final slice is a large optional payment called the Guaranteed Minimum Future Value, or balloon, which represents the car’s projected end-of-term value.

When the agreement ends, you have three choices. Pay the balloon and own the car outright. Hand it back, subject to mileage and condition checks. Or, if the car is worth more than the GMFV, use the equity as a deposit on a new PCP through the same dealer. That flexibility, combined with lower monthly payments than a straight Hire Purchase deal, is why PCP became the dominant new-car finance product in the UK during the 2010s — by 2017, more than 80% of new private car sales were on PCP. Every PCP is a regulated credit agreement under the Consumer Credit Act 1974, and any commission paid to the dealer or broker arranging it has to be properly disclosed to you.

Why it matters for your claim

PCP agreements signed between 2007 and 28 January 2021 form the largest group within the FCA’s 2026 motor finance redress scheme. If you took out a PCP through a dealer or broker during that window, your interest rate may have been raised under a Discretionary Commission Arrangement, or the commission paid to the dealer may have been undisclosed in a way that breaches the section 140A “unfair relationship” test in the Consumer Credit Act 1974. The agreement does not need to still be live to fall within scope — settled, traded-in, voluntarily terminated and even repossessed PCPs can be eligible.