You may have come across the term “PCP Finance”, but you may be wondering what it actually means. Furthermore, you may be thinking about how it can impact a potential car purchase that you could be making in the near future. Today, we’re here to tell you what a PCP is all about, and why it’s an option that you may wish to consider.
A PCP stands for a Personal Contract Purchase, or a Personal Contract Plan. This is a loan which will allow you to buy a car under a long-term agreement (generally three years, or 36 months to be more in line with the regularity of payments). You will be paying one set fee every month, with no need for a deposit, and when the agreement reaches its end, there is no requirement for you to take full ownership of the vehicle. You can choose to do so if you wish, via a balloon payment, but you are not liable to retain and own the vehicle if you do not wish to do so.
In addition, the value of the car come the end of the agreement is calculated at the beginning, before you make your first payment, and the value is deferred. This is interesting to note, because it lets you know just how much your car is going to be worth once you’ve completed your final payment under the terms and conditions of a PCP, without you making estimates or trying to weigh up whether it is more cost-effective to switch to a new vehicle. By knowing well in advance what the eventual value of the car will be, you will have plenty of time to make your post-PCP decision with regards to keeping or letting go of the car, and ultimately it will simply be about how much you like the car as a whole.
PCP Finance is favoured by those who tend to change cars every few years, and the option to part-exchange (thus paving the way for a new car under a fresh PCP contract) allows drivers who truly need a car for their everyday needs to know that they will never be without a vehicle. What’s more, the dealer and manufacturer will be responsible for covering any malfunctions with the car, ensuring that you only have to pay for repairs should problems be incurred that arise from your own driving behaviour.
There are some downsides, such as hidden costs relating to insurance and negative equity, but on the whole, a PCP agreement has unique conditions which make it a popular choice amongst drivers new and old. We’ve outlined the PCP process here, and if you’re planning to buy a car in the near future, hopefully this will prove to be enlightening and potentially very useful in determining if a PCP agreement is right for you so that you don’t get missold.