I’ve just received my first statement from my first PCP car agreement and I’m very confused.

My credit amount was £20,500 ish and my statement shows that my opening balance 29 days later (when my first monthly payment was made) was over 15% more at around £23,800.
The interest rate is 4.9% and it’s a 4 year term with a balloonPCP of about £12,000 at the end.

I thought I understood how these things worked but I’m baffled by the increase in the amount on my account by over £3,000 in the first month.

Can anyone explain this to put my mind at rest please?

  • 2
    What is PCP? What country are you in? – yoozer8 Sep 20 '19 at 13:41
  • Do you have any paperwork from the account opening that may show the difference (i.e. if it was tax or a fee or something)? Is the statement itemized? Can you call the entity holding the account and ask them to explain? – dwizum Sep 20 '19 at 14:15
  • 1
    looks like PCP is a car lease, not a car purchase loan. – user4556274 Sep 20 '19 at 16:27
  • @user4556274 PCP is considered a form of hire purchase. However (a) the last payment is much higher than the others, and (b) you can choose not to pay it, and hand the car back instead. The final "balloon" payment is normally the estimated used value of the car at the end of the loan period. – Simon B Sep 20 '19 at 18:00

From what I've read a PCP is analogous to a lease in the US. You'll pay monthly payments for 4 years with a balloon payment (if you actually want to buy the car) of £12,000.

It sounds like the "balance" you're seeing is the sum of your monthly payments plus the balloon. A 4.9%, 4-year loan for £20,500 with a £12,000 balloon payment should have a monthly payment of about £244. 48 monthly payments plus the balloon comes out to £23,730, so that would fit the balance you're seeing.

  • 1
    I think that must be what I'm seeing as that works out almost exactly when I plug the actual figures in. Thanks very much. – Jolberg Sep 21 '19 at 9:59

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