PCP monthly payment and total cost.
Monthly payment
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Total cost (if you keep it)
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Total interest
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Your breakdown
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What you are really financing on PCP
Personal Contract Purchase is the most common way to fund a new car in the UK, and it works differently from a normal loan. You do not borrow the full price. Instead the lender defers a large chunk of it, the Guaranteed Future Value or balloon, to the very end, and your monthly payments only cover the predicted depreciation over the deal plus interest on the whole financed amount. This calculator takes your price, deposit, balloon, term and APR, then amortises the depreciation portion while the balloon hangs at the end, which is exactly how a dealer's system arrives at the monthly figure.
The structure is what keeps PCP monthlies low compared with hire purchase on the same car: you are paying for the slice of the car you use, not the whole thing. This tool is for anyone sitting in a showroom or comparing finance quotes who wants to see the true monthly cost, the total cost if they keep the car, and how much of that is pure interest.
A £35,000 car over 36 months, broken down
Take the defaults: a £35,000 car, £5,000 deposit, a £15,000 balloon, a 36-month term and an 8.9 percent APR. The finance covers the price less the deposit, with the present value of the balloon stripped out of the amortised amount.
The chart breaks the £41,152 total into its parts: deposit, 36 monthly payments, and the balloon you settle if you decide to keep the car.
Three doors at the end of the deal
When the term ends you choose one of three routes. You can pay the £15,000 balloon and own the car outright, which the total cost above assumes. You can hand the car back and walk away, owing nothing further provided you are within the agreed mileage and the car is in fair condition. Or, most commonly, if the car is worth more than the balloon you use that equity as the deposit on your next PCP. That part-exchange equity is why PCP feels like a rolling subscription: many drivers never actually pay a balloon, they just keep cycling into the next deal every three or four years.
The traps the monthly figure hides
A low monthly payment masks several costs. The total interest of £6,152 in the example is paid on the full financed sum including the part you defer, so you are paying interest on the balloon throughout the term even though you only settle it at the end. Mileage matters too: PCP agreements set an annual mileage limit, and exceeding it triggers excess-mileage charges, often several pence per mile, billed when you return the car. There are also fair wear and tear standards, and damage beyond them is charged. A genuine tip from experience: be honest about your real annual mileage when you set the contract, because buying extra miles up front is far cheaper than the penalty rate at the end, and an unrealistically low mileage just inflates the GFV and your monthly cost for nothing.
Is a higher balloon always better because it cuts my monthly payment?
It lowers the monthly figure, but it does not make the car cheaper. A larger balloon means you finance less depreciation each month, yet you still pay interest on the whole amount, and you face a bigger lump sum at the end if you want to keep the car. A high balloon also raises the risk of negative equity, where the car is worth less than the GFV, leaving you no deposit for the next deal. Balance the monthly comfort against the size of the final decision you are deferring.
How is PCP different from hire purchase?
With hire purchase you finance the entire price, there is no balloon, and at the end of the term you simply own the car with nothing left to pay. Monthly payments are higher because you are clearing the whole value, but the total cost is often lower and you are guaranteed to own the asset. PCP suits drivers who like changing cars regularly and want low monthlies; HP suits those who intend to keep the car for years and want to own it outright. Compare the total cost figure, not just the monthly, when deciding between them.