PCP vs personal loan: which should you use to buy a car?
A personal loan can make you the owner from the start and may have a lower borrowing cost. PCP can reduce the monthly payment by deferring a large amount until the end.
The short answer: compare the rate and total repayment, but also compare ownership and payment timing. A lower PCP monthly payment does not necessarily mean a lower cost because the balloon remains to be paid if you keep the car.
The main differences
| Question | PCP | Personal loan |
|---|---|---|
| Who owns the car? | The finance company until all required ownership payments are made | You normally buy and own the car immediately |
| Monthly payment | Often lower because of the balloon | Repays the whole loan across the term |
| Payment at the end | Balloon if you keep the car, or return conditions if you do not | Normally no balloon after the final instalment |
| Ability to sell | You normally need to settle the finance first | You can normally sell the car, but the unsecured loan still has to be repaid |
Do not compare APR alone
APR is important, but the amount borrowed and payment schedule matter too. PCP interest can be charged while a substantial balloon remains outstanding. A personal loan repays principal through the regular instalments and normally reaches zero at the end of its term.
Compare the deposit or cash contribution, number of payments, monthly amount, all fees and the PCP balloon. Also confirm whether the personal-loan amount is sufficient, as lenders can have borrowing limits.
Compare the same outcome
If the aim is to own the car, include the PCP balloon in full. Both routes then leave you with the car, so deduct the same expected resale value when estimating the economic cost.
If the plan is to return the PCP car instead, you will not have an asset to sell. In that case, mileage, condition and return charges also become relevant and the comparison is closer to leasing.
When each method may fit
PCP may fit when
You need lower monthly payments, value the end-of-term choices and understand the large amount deferred.
A personal loan may fit when
You want to own the car immediately, can obtain a competitive rate and prefer no balloon or vehicle-return rules.
Use the rate you have actually been offered
Representative APRs are not guaranteed. Enter the personal-loan and PCP figures from your own quotations to compare payment timing and total estimated cost.
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This is general information, not financial advice. Finance is subject to status and the terms of the provider’s agreement.