Balloon vs PCP vs standard finance
Standard finance repays the full amount over the term, so you own the vehicle outright at the end. Balloon and PCP defer a lump sum to the end to lower your regular repayments, at the cost of higher total interest. The best structure depends on whether lower repayments or lower total cost matters more to your business.
What are the three structures?
All three are secured vehicle finance, but they differ in how the balance is repaid. Standard finance spreads the full amount evenly across the term. A balloon payment defers part of the balance to a single lump sum due at the end. PCP, or personal contract purchase, works like a balloon but frames that final amount as a guaranteed future value, giving you a defined choice at the end of the term. Understanding the difference is the first step to choosing well.
How do they compare side by side?
The table below compares the three on the same $60,000 asset over a 5-year term at a representative rate of 12.95% p.a., with no deposit. Figures are indicative only and exclude fees.
| Feature | Standard finance | Balloon | PCP |
|---|---|---|---|
| How it works | Full balance repaid over the term | Part of the balance deferred to a final lump sum | Final amount set as a guaranteed future value |
| Indicative weekly repayment | $314/wk | $264/wk | $256/wk |
| Lump sum at end of term | None | $18,000 | $21,000 |
| At the end you can | Own the vehicle outright | Pay, refinance or sell to clear the balloon | Pay and keep, hand back, or trade in |
| Total interest | Lowest of the three | Higher, balance keeps accruing | Higher, balance keeps accruing |
| Best suited to | Buyers who want to own the vehicle and pay least overall | Cashflow-sensitive businesses wanting lower repayments | Buyers who want flexibility at the end of the term |
Indicative only, 5-year term, zero deposit, at a representative rate of 12.95% p.a. Not an offer of finance.
When does standard finance make sense?
Standard finance suits buyers who want the lowest total cost and clear ownership at the end. Because nothing is deferred, the balance reduces to zero across the term and you own the vehicle outright. The trade-off is a higher regular repayment than a balloon or PCP on the same amount. It is often the right choice for a vehicle you intend to keep well beyond the finance term.
When does a balloon or PCP make sense?
A balloon or PCP suits a business that values lower regular repayments to protect cashflow, or a buyer who expects to change the vehicle at the end of the term. Deferring part of the balance keeps weekly costs down while the asset is working. The considerations are that total interest is higher and you need a plan for the final lump sum, whether that is paying it, refinancing it or selling the vehicle.
Common questions about finance structures
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