Finance
How Car Finance and PCP Work: Deposits, APR & Balloon Payments
Just ask and get Editorial Team(Consumer Automobile Finance)
Updated 2026-09-20
7 min read
Key Takeaway:A step-by-step consumer guide to vehicle financing, PCP vs. HP comparison, and managing final balloon payment decisions.
What is PCP (Personal Contract Purchase)?
PCP is the most popular method of financing new and used vehicles in the UK and Europe. Rather than paying off the entire cost of the car, you only finance the predicted depreciation of the car across a 2- to 4-year term, followed by an optional final balloon payment.
How Monthly Payments Are Calculated
Your monthly bill consists of two components: the depreciation installment ((Borrowed Amount - Balloon) ÷ Term) plus the monthly interest charge applied to the total outstanding loan balance.
Frequently Asked Questions
What is Guaranteed Minimum Future Value (GMFV)?
GMFV is the predetermined value the finance company estimates your car will be worth at the end of the agreement based on age and agreed mileage limits.