PCP arrears: your options if you fall behind
A PCP looks like a lease but works like hire purchase. Knowing that, and where the balloon payment fits, changes your options.
Applies to: UK-wide
What to do now
- Find the total amount payable and the optional final payment in your agreement.
- Contact the lender before the next payment is missed and ask about reduced payments or a payment break.
- Put any default notice date in the deadline planner.
How a PCP is built
A PCP has a deposit, monthly payments and an optional final payment, often called the balloon, set around the car’s predicted value at the end. All of these, plus interest and fees, make up the total amount payable. You do not own the car unless you pay the balloon.
Where you stand
| Paid so far | What it means |
|---|---|
| Less than a third | After a default notice expires, the lender can take the car from a public place without a court order. |
| A third to a half | The lender needs a court order to repossess, unless you agree at the time. |
| Half or more | You can end the agreement under voluntary termination and owe nothing more for the finance, apart from arrears already due and any damage. |
Options to raise with the lender
- Reduced payments for a set time, backed by a budget.
- A short payment break, if your income is about to recover.
- Paying up to the half-way line and then using voluntary termination.
- Selling or part-exchanging, which needs the lender’s settlement figure; if the car is worth less, you need to cover the difference.
- A time order from the court, if the lender takes court action.
Lenders must treat customers in arrears with forbearance and due consideration, so ask what they offer and get it in writing.
If you cannot pay the balloon
At the end, you can usually hand the car back instead of paying the final payment, subject to its condition and the agreed mileage. Check the date well in advance; missing it without a plan can turn the balloon into arrears.
The motor finance commission redress scheme
The FCA has set up a compensation scheme for some car finance agreements taken out between 6 April 2007 and 1 November 2024 where commission was not properly disclosed. On 2 July 2026 the Upper Tribunal suspended parts of it while legal challenges are heard, with the challenges due to be heard in December 2026 or February 2027, so lenders do not currently have to work out or pay compensation. A possible claim does not pause your arrears or change what you owe now. You can complain to your lender for free; you do not need a claims firm.
PCP in a debt solution
If the car is essential and the cost is reasonable, the finance can often continue alongside a formal solution. See IVAs and car finance.
You never have to pay for debt advice. MoneyHelper (government-backed), StepChange, National Debtline and Citizens Advice all give free, confidential advice with no obligation.
Common questions
Can I hand back a PCP car if I am in arrears?
Yes. You can use voluntary termination at any time before the final payment is due. The arrears count towards the half-way point, but you still owe them.
What happens if I cannot pay the PCP balloon payment?
You can usually hand the car back instead of paying it, as long as it is within the agreed condition and mileage. Talk to the lender before the date so it does not become arrears.
Should I pause payments while a car finance commission complaint is ongoing?
No. A complaint or possible compensation does not pause the agreement or the arrears, and missed payments can still lead to a default and repossession.