Personal Contract Purchase (PCP) Car Finance

What is personal contract purchase?

Due to the flexibility and low monthly payments, PCP has rapidly become the most popular way in which to finance cars. The customer pays an initial deposit, followed by a series of monthly payments and at the end of the term the customer then has the option to make a final lump sum payment in order to own the car, or to merely return the car with no further obligations.

Increasingly popular, PCP car finance can be ideal if you're looking to change your car regularly but also want relatively low monthly payments. PCP deals are flexible, with cheap monthly payments and - often - low rates of interest.

A PCP deal is similar to personal car loan but you won't be paying off the full value of your new car and you won't own it at the end of the contract period - although you can choose to purchase it. Due to this, you will need to be aware of financial penalties attached to a PCP deal - you may need to pay additional charges if you exceed the pre-agreed mileage limit, or if there's damage to your car at the end of the agreement term.


How does PCP finance work?

PCP is more complex than other car finance options, such as Hire Purchase. The following the steps are the key areas to focus on to determine whether it's the right kind of finance for you:

• Find your new car
• Pay a deposit based on a percentage of the car's value - you'll borrow less if you pay a larger deposit
• You'll then pay fixed monthly payments depending on how much you borrow
• The amount you borrow is based on how much the finance company predicts will lose in value over the term of the deal (the depreciation of the car's value) minus the deposit you've put down
• Due to this, you're not paying the full value of the car
• At the end of the agreement you can pay a "balloon payment" in order to own the car


What is a balloon payment?

With PCP finance, a balloon payment is based on the amount your dealer expects your new car to be worth after your finance deal ends. This figure - known as the Guaranteed Minimum Future Value (GMFV) - is agreed at the start of your deal. It will partly be based on how many miles you will do each year.

You can pay the balloon payment if you want to keep the car. However, you can also return the car, or you can use the difference between the value of the car and the balloon payment as a deposit for a new car on a new finance deal.

If you return the car to the finance company, there may be additional charges. Firstly, at the start of your agreement, your finance company will specify an agreed mileage limit. If you exceed this over the course of the deal, then over-mileage charges apply. Secondly, you can be charged for any damages beyond normal wear and tear.


Should you get a PCP deal on a new car?

The are a number of advantages to PCP finance, and it's a popular choice of finance for new cars in particular. Monthly repayments will be lower than with a car loan or hire purchase - due to this, it's also possible to buy a more expensive car than you initially considered. It's flexible, with multiple options at the end of the deal. Furthermore, you needn't worry about future resale value, as this is agreed at the beginning of the deal.

Other finance options may be more advantageous if you're worried about mileage or if you are going to struggle to keep the car in good condition. You also won't own the car during the contact period, although this is the case with many other car finance options, such as HP.

Browse our full range of new cars and discount vans - from small city cars and family-friendly hatchbacks to practical MPVs and innovative SUVs. Contact us to learn more about the new car pcp deals available.