Personal loan vs PCP car finance — which is cheaper for a car?
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In short. A personal loan buys the car outright so you own it from day one and can sell it any time; PCP usually has lower monthly payments but you only own the car if you pay the final balloon payment.
Both let you spread the cost of a car, but they work very differently. A personal loan is unsecured borrowing you use to buy the car, so you own it immediately. PCP (Personal Contract Purchase) is secured against the car, with low monthly payments covering depreciation and a large optional 'balloon' payment at the end if you want to keep it.
Last reviewed:
Side by side
Who owns the car
Personal loan
You — from day one
PCP car finance
The finance company until you pay the balloon payment
Typical monthly cost
Personal loan
Higher (you repay the full price)
PCP car finance
Lower (you mainly pay depreciation)
Deposit
Personal loan
Optional
PCP car finance
Usually required
End of term
Personal loan
Loan repaid — car is yours
PCP car finance
Hand back, part-exchange, or pay the balloon to keep it
Mileage limits
Personal loan
None
PCP car finance
Yes — excess-mileage charges apply
Sell the car early
Personal loan
Yes, any time
PCP car finance
Not until settled; you can voluntarily terminate after paying 50%
Secured against the car?
Personal loan
No (unsecured)
PCP car finance
Yes — can be repossessed if you default
Best for
Personal loan
Keeping a car long term
PCP car finance
Lower payments and changing car every few years
When Personal loan usually wins
- You want to own the car outright and keep it for years
- You drive high mileage
- You want freedom to sell whenever you like
- You can get a competitive representative APR
When PCP car finance usually wins
- You want the lowest monthly payment
- You like changing your car every 2–4 years
- You are comfortable with mileage limits and condition rules
- You may not want to own the car at the end
Related quick answers
FAQ
- Which is cheaper overall?
- For keeping a car long term, a personal loan is often cheaper in total because you own it and avoid the balloon payment. PCP usually wins on monthly affordability, not total cost.
- Can I claim compensation on PCP finance?
- Possibly, if your agreement predates 28 January 2021 and involved an undisclosed discretionary commission. You can complain to your lender for free; see our car finance mis-selling guide.
- Does a personal loan affect getting a mortgage?
- Yes — both a loan and car finance appear on your credit file and affect affordability assessments, so factor them in if you plan to apply for a mortgage soon.