In the UK, a personal contract purchase deal is one of the most popular ways to get a car on finance. There are many benefits of financing your next car through PCP and it can be accessible even if you don’t have the best credit score. However, there are also certain aspects of PCP deals that may not suit everyone. If it’s time to get a new car, read the guide below to see whether PCP is right for you.
How does PCP work?
Getting a car through personal contract purchase is a flexible and effective way to fund your next purchase. When getting PCP cars you can benefit from low monthly payments and more flexibility from your car finance deal. When you get a car through PCP, you will apply to lend a set amount which is secured against your chosen vehicle. This means that if you fail to repay, the lender owns the car and can take the car off you. Unlike hire purchase, you don’t pay off the cost of the vehicle and instead cover the cost of the value that the car loses throughout the agreement. During an agreed period, usually 3-5 years, you will agree to meet monthly payments with added interest on time and in full. Failing to repay can lead to more serious financial consequences. Once the agreement has come to an end and all payments have been made, you then have three options. You can choose to:
- Hand the car back to the dealer and the agreement has ended
- Pay the large balloon payment and keep the car
- Use the value towards a newer car on PCP
Benefits of getting a car through PCP:
For many, the benefits of Personal Contract Purchase deals are undeniable.
- Low monthly payments. Due to the structure of PCP deals, you don’t have to cover the cost of the vehicle you choose. Instead, you pay back the depreciation, this helps to make monthly payments much lower than other options, even on brand new cars.
- Flexible plans. PCP allows you to choose your monthly budget to suit you. With flexible payment plans and the option to spread the cost over 3-5 years, you can make your PCP deal work for you.
- You don’t have to own the car. If you like the idea of using a car you don’t have to own at the end of the agreement, then PCP could be perfect for you. Most people choose to hand their car back at the end of the agreement or use it towards getting another car on PCP.
- Choose between new or used cars. When PCP agreements were first introduced, they were only available on brand new cars. However, you can now choose to finance a new or used car through PCP. This can help to keep costs low when choosing a second-hand car.
- You don’t need good credit. Car finance is more accessible than it ever has been. People with bad credit or adverse credit histories can now be eligible for both hire purchase and PCP car finance deals. If you’re unsure of where you fall on the credit scale, you could use a free car finance eligibility checker UK to find out and see what type of loan you could be offered.
What to consider before you take out a PCP deal:
As mentioned above, there are so many benefits to getting a PCP car and that they can suit a range of different people. However, there are a few factors you should consider before you commit to getting a car on finance.
- Large balloon payment. PCP car finance deals do allow you to own the car at the end of the agreement if you want to. However, first you will need to pay the final balloon payment. PCP deals only require low monthly payments to be made so the final payment tends to hold the most value. Your final balloon payment can be thousands of pounds left to pay and it can be hard to pay your PCP deal each month and also save to pay off the balloon payment at the end of the deal.
- Mileage restrictions. To estimate the value of the car at the end of the agreement, lenders will ask you to set an annual mileage over the course of the agreement. At the end of the agreed period, you can incur additional mileage charges if you fail to stay within your agreed mileage limit.
Damage charges. Most people tend to hand their car back at the end of the agreement so you will need to agree to keep the car in good condition at the start of the agreement. If you return the car in a state that’s goes beyond general wear and tear, you can have additional damage charges.
