More drivers than ever are choosing car finance as a way to fund their next car purchase. It can be a great way to spread the cost of getting a car and there are even a number of agreements to choose from too! One of the most popular forms of car finance is Personal Contract Purchase (PCP). It’s a well-loved finance agreement that offers greater flexibility to drivers and also low monthly payments. If you’ve never had a car on finance before or you’ve wondered if PCP is right for you, the guide below looks to explore exactly that!
What is Personal Contract Purchase?
PCP is a form of finance agreement that allows you to spread the cost of the value of your chosen car. It’s a secured loan which means the lender owns the car until the final payment has been made. Unlike agreements such as hire purchase though, the whole cost of the car isn’t equally divided into monthly payments. Instead, much of the loan is differed until a large final balloon payment that you will need to pay if you wish to keep the car. This helps to keep monthly payments low and allows the driver to have more freedom when it comes to what happens that the end of the agreement.
How do PCP agreements work?
You can choose an eligible new or used car from a reputable car dealership or sort your finance through a trusted car finance company and then get the car you want. Once you been approved for finance, you then agree to make monthly payments till the end of an agreed term. PCP deals can be spread over 3-5 years’, and you have the right to cancel the agreement at any time, as long as you pay off any outstanding finance. Once your agreement comes to an end, you have three options:
- Pay the balloon payment and keep the car.
- Hand the car ack to the dealer in good condition and within the agreed mileage set at the start of the agreement.
- Use the resale value of your current car towards another car on a new PCP agreement.
Benefits of choosing Personal Contract Purchase:
There are many reasons why PCP is attractive to drivers.
- More flexibility
- Don’t have to own the car.
- Choose a term that suits you.
- Choose new or used cars.
- Lower monthly payments.
What to consider before getting a car through PCP:
Whilst there are advantages of getting a car on PCP finance, there are a few factors that are worth considering before you commit to this form of finance.
- Mileage and damage charges. Most drivers use PCP with the intention of handing the car back. Your monthly payments are also based on the guaranteed future value of the vehicle so lenders ask you to set an agreed mileage at the start of the agreement so they can predict how much the car will be worth. If you come to the end of your agreement and you have exceeded the mileage or the car comes back in a state that goes beyond general wear and tear, there are charges that you will need to pay.
- Ownership of the car. If you want to take out car finance with the intention of owning the car at the end, PCP may not be the most cost effective. There is a large balloon payment at the end of the deal that will need to be settled before you can take ownership of the vehicle. This is usually thousand of pounds to pay and most drivers won’t have this kind of money to hand.
- Before you can get any form of finance or credit, you will need to undergo a credit check. It can be harder to get approved for PCP car finance with bad credit or it can mean that you may face a higher interest rate. In this case, it could be worthwhile to improve your credit score first before you start applying for finance.
