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How Does A PCP Deal Work?

Takeo Fay
Posted by Takeo Fay June 22, 2021

Over the last few years, finance has become pretty popular for the people in the UK to fund their car purchases. One of the types of loans that these people are going for is the PCP-Personal Contract Purchase.

What is Personal Contract Purchase (PCP)?

PCP is a form of loan facility that allows you to spread the vehicle payment for two or three years. You pay a deposit or down payment (the payment you make upfront) for your preferred car and, after that, make monthly payments until the end of the agreed repayment period.

At the end of the period, they can decide to own the car by making a lumpsum payment -commonly referred to as a balloon payment to purchase the car outright.  It’s a more affordable way to get a car into your hands.

In this kind of arrangement, most dealers offer up to 30,000milleages per year. The higher the mileage, the greater the monthly cost. The more the miles, the higher the rate of depreciation and the price.

Here, you’ve to be pragmatic; the cheaper payments for a low mileage might seem a great deal but could end up paying more for less mileage.

How does PCP work?

A PCP deal is quite simple, and most of the time, you don’t even require an initial deposit. You choose your car model, decide on contract length, and agree on a mileage allowance.

After passing credit checks, provide the required documents, and agree on payments, and then you can enjoy your ride.

At the end of the contract, you also have a few options;

  • You can return the car after reaching your mileage limit, and it’s in good condition
  • Make the balloon payment, and you can drive home safely
  • You can arrange for a new PCP on the car if the value is higher than the balloon payment.

Who offers PCP?

Motor manufacturers or car dealers offer these types of car PCP arrangements. Check out also with some finance companies.

Pros and Cons of PCP

Are you a car enthusiast who enjoys the thrill of the latest tech? The PCP finance is most likely your thing. As you continue paying for your car on PCP arrangement, you may want to keep the car after. If that’s your case then, you’d better explore car hire purchase.

Pros of PCP

  • Flexibility: You don’t have to crack your head looking for a new car at the end of the contract. You have an option to pay a lump sum and own the car. Or, if you’re comfortable, you can move on.
  • Low monthly payments: The monthly payments are lower compared to others like hire purchase because of the lumpsum you pay at the end of the term. So it’s something you can afford.
  • Roll-over option: At the end of the repayment, you’ve got an option to roll over the deal and get a new car.
  • You are protected against depreciation: If the car value declines quicker than expected, you can return the car and get a new one.

Cons of PCP

PCP comes with its disadvantages in that; 

  • High interest rates: The interest rates are higher compared to Hire Purchase and other forms of financing.
  • You don’t own the car: It remains the property of the finance company until you clear repayments and make the balloon payment.
  • The mileage gap: If you happen to go beyond the agreed mileage, the finance company will charge you extra because it negatively affects the car value.

If you’ve decided it’s PCP you want, you’ve several options to get the car. You can choose a manufacturer or car dealership that’s selling the car you want. As an incentive, some will even offer deposit contributions. You can also check out online car finance providers.