Unpacking PCP Car Finance
What Is PCP All About?
PCP, or Personal Contract Purchase, is a flexible car finance option that’s all about choices. At the end of your agreement, you can either buy the car, return it, or swap it for a new one. The best part? You don’t have to finance the car’s full price; you only cover the value the car will lose over the agreement period. This usually translates to lower monthly payments, but remember, you won’t own the car unless you make the final ‘balloon’ payment.
The Ideal Candidate for PCP
If you enjoy switching cars regularly, don’t rack up miles, and fancy lower monthly payments, PCP might be your go-to option. However, do keep an eye on those T&Cs: you’ll agree to a set mileage and must keep the car in good nick to avoid extra fees.
How Do Monthly Payments Work?
Your monthly payments depend on:
- Initial deposit size
- Car model
- Total car cost
- Interest rate
- Agreed mileage
- The car’s estimated value at the end of the agreement
The Road to Ownership: What Happens at the End?
Once your PCP term ends, you’ve got options:
- Hand the car back and walk away.
- Make the ‘balloon payment’ to own the car.
- Use any remaining car equity as a deposit for a new PCP deal.
What’s This ‘Balloon Payment’?
The balloon payment is the final sum you’ll pay if you want to own the car outright. It’s calculated based on the Guaranteed Minimum Future Value (GMFV) of your car and could range from a small to a substantial amount.
Steps to Get on PCP
- The Deposit: Putting down a deposit can reduce your loan amount. No deposit? No worries, zero-deposit options are available.
- Loan Amount: You’ll borrow an amount equal to the car’s predicted depreciation, not its full cost.
- Balloon Payment: If you choose to buy the car, this final payment seals the deal.
The Good and The Not-So-Good
Pros
- Lower monthly payments than other finance options.
- Flexibility to buy, return, or swap the car.
- Fixed monthly payments for easy budgeting.
- Access to newer used cars.
Cons
- You won’t own the car unless you make the balloon payment.
- Extra charges for exceeding mileage or damaging the car.
- A deposit might be needed.
- Limited equity for a new deal if the GMFV is close to the actual car value.
Is PCP Right for You?
PCP could be a fit if you:
- Like changing cars often.
- Are a cautious driver.
- Don’t frequently travel long distances.
Want more info? Check out our in-depth guide on our blog.
PCP vs HP: What’s the Difference?
- Ownership: HP guarantees car ownership after the final payment, while PCP offers it as an option.
- Monthly Payments: HP typically has higher monthly payments as it covers the full car cost. PCP usually offers lower monthly payments.
- Restrictions: PCP comes with mileage limits and potential extra charges, whereas HP generally has no such restrictions.
Eligibility for PCP
To apply, you must be over 18 and have a three-year UK address history. A good credit score can boost your chances, but we work with a range of lenders to find the best match for you.