Looking to get a car on finance? Personal Contract Purchase is one of the most popular ways to spread the cost of getting your next car. From low monthly payments to flexible loan terms, there are many advantages to getting a car through PCP. But how can you know whether you’d be suited to this kind of deal? The guide below has been designed to explore how PCP deals work, the benefits and also a few key factors you should consider before you decide whether its right for you or not. Let’s take a closer look.
How does Personal Contract Purchase work?
Personal Contract Purchase (PCP) is a form of hire purchase and is a type of secured loan. Within this type of car finance agreement, you don’t spread the cos of your chosen car but instead cover the cost of the depreciation. This is the value the car loses from the start of the agreement and until the agreement has ended. PCP deals are usually spread over 3-5 years and can be available on both new and used cars. To pay back the depreciation, you make monthly payments with interest till the end of your agreed term. At the end of the agreement, you can then choose to hand the car back, pay the final payment and keep the car or use the value towards another PCP deal.
Benefits of getting a car through PCP:
For many people, getting a car through PCP is a no brainer so here’s some of the most popular benefits of getting a car finance deal.
1. Low monthly payments
One of the biggest benefits of getting a car through PCP is the low monthly payments. Unlike Hire Purchase or a personal loan, you don’t pay back the full cost of the car. A smaller loan means your monthly payments are lower and more manageable. Even if you are wanting to finance a brand-new car, cheap PCP car finance allows you to do just that without breaking the bank.
2. Flexible options
PCP can be really beneficial to those who want more flexibility from their car finance deal. If you decide you don’t want to keep the car at the end of the agreement, you can simply hand the car back or use the resale value towards a new car on PCP. If you want to keep the car, you can pay the large balloon payment at the end and keep the car. The final payment tends to be quite large, and many people can’t afford to pay it outright, but you could consider refinancing the final payment if you want to keep the car.
3. Low or no deposit needed
If you don’t have a deposit to put down or don’t want to touch your savings account, there are many PCP deals that can be secured without having to put down a deposit. If you never plan on owning the car, a lower deposit contribution can be better for the deal in the long run.
4. Choose new or used cars
When PCP car finance deals were first introduced, they were usually only available on brand new cars. Nowadays, you can get a great deal on both new and used cars through PCP. If you want to drive a better car, you can geta brand new car with low monthly payments. Used cars have a lower sale price than new cars so if you want to make costs even lower, you could consider financing a used car through PCP.
Things to consider before getting a car through PCP
As mentioned above, there are so many benefits to getting a car on PCP but there are a few factors which may affect the approval process or may mean you’re not suited to this type of agreement.
- Large final payment. If you want to own the car at the end of your car finance deal, PCP may not be the best option for you. The final balloon payment tends to be thousands of pounds to pay, and many people find it hard to pay a finance deal each month and also save towards a large balloon payment. If owning the car from the offset or at the end of the deal is important to you, you could be better suited to a personal loan or hire purchase deal.
- Damage and mileage charges apply. Most people choose to hand their car back at the end of a PCP agreement. Due to this you will need to agree an annual mileage at the start of your agreement. You will also need to agree to keep the car in good condition. If you exceed your mileage limit or hand the car back in a condition that goes beyond general wear and tear, you will have to pay additional charges.
- High interest for bad credit. Just like any form of car finance, lenders will want to know how likely you are to pay your finance back on time and in full. They can do this by running a credit check on you and if you have bad credit, you can be seen as more of a risk. Lenders can sometimes user higher interest rates to secure the deal for those with bad credit. A higher interest rate means you’ll pay back more overall, and it may not work out the cheapest option for you.