What is personal contract purchase (PCP)?
Personal Contract Purchase (PCP) is a finance agreement that lets you drive a new car for a fixed term, typically two to four years, with lower monthly payments than Hire Purchase. At the end of the contract, you have three choices: pay a final balloon payment to own the car, hand it back with nothing further to pay (provided you have stayed within your mileage allowance and kept the car in good condition), or use any equity in the car as a deposit on your next vehicle.
The reason monthly PCP payments are lower than Hire Purchase is structural: you are only financing the car's depreciation (the difference between its value now and its projected value at the end of the contract), not its full purchase price. That projected end value is set at the start of the contract and is called the Guaranteed Minimum Future Value, or GMFV.
Typical PCP terms: two to four years, annual mileage allowance agreed upfront, usually between 5,000 and 15,000 miles per year.
How PCP works for electric cars specifically
EVs introduce additional considerations into a PCP agreement that do not apply to petrol equivalents.
Depreciation risk on the GMFV. The GMFV is set at the start of your contract based on projected residual values. For EVs, this is harder to predict. Some models have lost 30–40% of their value in a single year due to rapid technology change and shifting incentives (figures vary by model — verify current data). If the market value of your car at the end of the contract is lower than the GMFV, the finance company absorbs that difference. If market value is higher, you have equity you can use as a deposit on your next car.
Manufacturer deposit contributions. To compete for EV sales and meet ZEV mandate targets, manufacturers frequently offer deposit contributions that reduce your monthly PCP cost. As an illustrative example, some manufacturers have offered contributions of up to £3,000 on specific models, though these vary by model and time period — verify what is available when you are ready to buy.
The Electric Car Grant. The grant (up to £3,750 off qualifying new EVs priced under £37,000 — verify current threshold at GOV.UK) is applied by the manufacturer before PCP is calculated. This reduces the financed amount, and therefore your monthly payments.
PCP vs hire purchase for an electric car
The key structural difference: PCP monthly payments are lower because you are only covering depreciation. HP monthly payments are higher because you are paying off the full purchase price over the term. With HP, ownership transfers automatically on the final payment; with PCP, you face a decision at the end.
| Factor | PCP | Hire Purchase (HP) |
|---|---|---|
| Monthly cost | Lower | Higher |
| Mileage limit | Yes | No |
| Balloon payment at end | Yes (optional to pay) | No |
| Own the car at end | Only if you pay GMFV | Automatically |
| Best for | Flexibility; lower monthly | Long-term keepers; high mileage |
For EV buyers who plan to keep the car for five years or more and drive high mileage, HP often makes more financial sense. There are no mileage penalties, no GMFV risk, and no balloon payment to worry about.
PCP vs leasing (PCH) for an electric car
Personal Contract Hire (PCH, or leasing) removes the balloon payment decision entirely. Monthly PCH payments are typically lower than PCP because there is no ownership option built into the pricing, and you simply return the car at the end. The key difference is intent: if you are certain you will not want to keep the car, PCH usually offers better value. If you want the option to own, PCP preserves that choice.
For EV drivers, the additional consideration is that rapid technology change means many prefer the regular upgrade cycle that leasing naturally provides. The BVRLA reports that the BCH (Business Contract Hire) fleet was 48% electric in 2025, up from 37% the previous year, which reflects the growing preference for leasing-style products among EV drivers.
Comparing your options? Explore electric car lease deals on our leasing hub to understand what is available alongside PCP.
What to watch out for with EV PCP agreements
- Excess mileage charges. These are agreed in your contract and typically run from 6–12 pence per mile on mainstream cars to 15–25 pence per mile on premium models. Agree a mileage allowance that reflects your actual driving before you sign.
- Fair wear and tear. Cosmetic damage beyond the standard set out in your agreement will be charged at the end of the contract. Check the BVRLA's fair wear and tear guidelines before returning the car.
- GMFV and market value. The GMFV protects you from negative equity if the car is worth less than expected at the end. But it also means that if EV values recover and your car is worth more than the GMFV, you can use that equity. The finance company sets the GMFV; it is not a guarantee of what you will receive.
- Voluntary termination rights. Under the Consumer Credit Act 1974, if you have paid at least 50% of the total amount payable under the agreement, you can return the car with no further obligation, provided it is in acceptable condition. This is a useful protection given EV value volatility; worth checking the exact figure in your agreement.
Is PCP right for you? A quick checklist
| PCP suits you if... | PCP might not suit you if... |
|---|---|
| You want lower monthly payments than HP | You drive 20,000+ miles a year |
| You want the option to own at the end | You want to own from day one |
| You change cars every 2–4 years | You plan to keep for 5+ years |
| Your mileage is predictable | Your driving habits are unpredictable |
| You want to use equity for your next car | You simply want to return and walk away |
Key takeaways
- PCP splits the cost into deposit, monthly payments covering depreciation, and an optional final balloon payment (GMFV).
- The Electric Car Grant and manufacturer deposit contributions can reduce your monthly PCP cost on qualifying models.
- EV depreciation has been volatile, making GMFV estimates less predictable than for petrol cars.
- Hire Purchase offers a simpler path to ownership if you plan to keep the car long-term.
- Under the Consumer Credit Act, voluntary termination rights protect you if you have paid at least 50% of the total amount.
Frequently asked questions
What does PCP mean for an electric car?
PCP (Personal Contract Purchase) is a finance agreement where you pay a deposit, make fixed monthly payments over two to four years, and then decide whether to pay a final balloon payment to own the car, hand it back, or use any equity toward a new vehicle. Monthly payments are lower than Hire Purchase because you only cover the car's depreciation, not its full value.
Is PCP or PCH better for an electric car?
PCH (leasing) is simpler and often cheaper monthly, with no balloon payment decision. PCP suits you if you want the option to own the car. For EV drivers who know they will return the car, PCH usually offers better value given current depreciation patterns. If ownership is a priority, PCP is the more suitable product.
Can I use the Electric Car Grant with PCP?
Yes. The grant (up to £3,750 off qualifying vehicles under £37,000 — verify the current threshold at GOV.UK) is applied by the manufacturer before finance is calculated. Many manufacturers also offer separate PCP deposit contributions on top of the grant on certain models.
What happens if I go over my mileage on a PCP agreement?
You will be charged excess mileage at the rate agreed in your contract, typically 6–12 pence per mile for mainstream cars and up to 25 pence per mile for premium models. Agree a mileage allowance that reflects your actual driving before you sign; it is cheaper to increase the allowance upfront than to pay excess at the end.
Can I cancel a PCP agreement early?
Yes. Under voluntary termination rights in the Consumer Credit Act 1974, if you have paid at least 50% of the total amount payable, you can return the car with no further obligation, provided it is in acceptable condition. This is a useful protection given EV value volatility. Check the exact 50% figure in your agreement before acting on this.