Start with what you can afford to spend on the car and its running costs, then choose finance around whether you want to own the car or return it. Compare the total amount payable—not just the monthly payment—and check every deposit, fee, mileage rule and end-of-contract cost before signing.
Set your budget before comparing finance
Write down the maximum you can pay upfront and the monthly amount your household can sustain. Then account for the costs that sit outside the finance agreement: insurance, fuel, repairs, maintenance and a buffer for unexpected expenses. A payment that fits on its own may not fit once the car is on the road.
Decide whether your priority is to own the car eventually or to use it for a period and then return or change it. That decision matters particularly with Personal Contract Purchase (PCP), where the monthly instalments do not buy the car outright.
Compare the whole offer, not its headline payment
Ask for written quotes based on the same car, deposit and agreement length. Compare the figures and conditions together; a lower monthly payment alone does not show that an offer costs less overall.
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- Total amount payable: what you will pay over the agreement, including any final payment if you intend to own the car.
- APR and interest: the cost of borrowing, alongside the total payable.
- Deposit and instalment: what is due at the start and each month.
- Term and fees: how long the agreement lasts and any charges or optional extras.
- Ownership and end-of-contract terms: whether you will own the car automatically, need to make a final payment, or can return it under stated conditions.
- For PCP, mileage and condition: the annual mileage limit, excess-mileage charge, and what the contract counts as acceptable wear, damage or return condition.
Costs and monthly payments vary with the car, contract length and dealer’s offer. There is no finance type that is cheapest for every buyer; compare the actual written offers against your budget and plans. MoneyHelper’s guide to buying a car and financing it also recommends looking beyond the monthly figure.
How PCP works—and what happens at the end
With PCP, you pay a deposit and monthly instalments to use the car, but you do not own it during the agreement. The finance provider sets a final amount at the outset based on its estimate of the car’s future value. This is called the Guaranteed Minimum Future Value (GMFV), often referred to as the balloon payment.
At the end, your choice is generally to pay the balloon and buy the car, return it subject to the contract’s mileage and condition rules, or arrange another PCP. The balloon is optional only in the sense that you do not have to pay it if you return the car; the return conditions and any charges still apply.
Illustrative PCP example
MoneyHelper illustrates the structure with a £20,000 car, a £3,000 deposit, a three-year agreement, 6% interest and a £7,000 GMFV. Its example estimates monthly instalments of about £350, about £2,500 in interest and a total purchase cost of about £22,500 if the customer pays the balloon. That total excludes insurance and running costs. It is a guidance example, not a current market quote; real offers can differ.
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Check the mileage and return rules
Estimate your annual mileage realistically before choosing a PCP limit. A higher allowance can raise payments because a car expected to have more mileage is expected to be worth less at the end; contracts commonly charge for going over the agreed limit. Do not choose an artificially low limit simply to reduce the instalment. Read the contract’s definitions of wear and tear, damage and return condition, and find out how any charges are calculated.
MoneyHelper describes PCP agreements as typically lasting three to five years and says a deposit is usually at least 10% of the car’s value. These are descriptions in its guide, not rules or guarantees for every finance offer. Its PCP guide sets out the items to check, including deposit, balloon, monthly payment, interest, APR, total payable, term, mileage and return-condition charges.
Check the firm, application and protections
Use the FCA’s Firm Checker to check whether the firm is authorised and has permission for the service it is offering. The FCA’s Consumer Duty requires firms to “Act in good faith towards customers. Treat customers honestly and fairly.” Its outcomes cover suitability, fair value, consumer understanding and support; this is not a guarantee that a particular offer is the best available for you. Ask for unclear terms, fees and benefits to be explained before agreeing.
Ask whether a credit application will involve a hard or soft search before authorising it. MoneyHelper says applications usually involve a hard search, although some may use a soft search. If you pay any part of a car purchase by credit card, Section 75 protection may apply in circumstances described in its guide; eligibility depends on the transaction, and some dealers do not accept credit cards. Check the details rather than assuming protection applies.
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- 110 Sheets Log Book: This vehicle maintenance log book includes 110 record sheets to track repairs, services, fuel costs, and other vehicle-related expenses. It also comes with 36 convenient “Service Due” stickers to help remind you of upcoming maintenance schedules. Everything you need to keep your car records organized in one place.
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If you need to complain
- Complain to the finance provider first and explain what went wrong.
- If you are unhappy with its response, you can take the complaint to the Financial Ombudsman Service. The FCA’s consumer rights guidance explains the route.
Past motor finance and possible compensation
MoneyHelper’s explainer describes a compensation scheme that may cover eligible personal-use PCP and hire purchase agreements made from 6 April 2007 to 1 November 2024, subject to conditions and exceptions. Potential grounds it lists include not being told about a discretionary commission arrangement, unfairly high commission or a contractual tie. Its specific discretionary commission arrangement route concerns agreements arranged from 6 April 2007 to 28 January 2021. Personal Contract Hire (PCH) leasing is excluded from the scheme described there.
These dates and conditions do not mean every borrower qualifies or will receive compensation. Check the current MoneyHelper explanation of who may qualify and the FCA’s consumer information before deciding whether to complain.
Quick Recap
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