What is PCP Car Finance?

By Matthew Gloag April 18, 2024

All You Need to Know About Personal Contract Purchase

Drive away your dream car with PCP Finance!

Monthly Repayments – How are they Calculated?

A number of factors contribute to your monthly repayments, first and foremost being the type of car you are financing and its value. The newer/more expensive the car is, the higher the repayments will be. But there are other factors as well:

  • Your Deposit: The more you pay upfront, the lower your monthly cost.
  • Contract Length: If you spread the deal over a longer period, you will not need to pay as much each month.
  • Depreciation: A newer car will depreciate much faster than a slightly older model that will hold its value longer. 
  • Mileage Limit: You will need to agree to a mileage limit at the start of the deal. The lower the limit, the lower your repayments will be. 
  • APR (Interest Charges): Looking for deals with a lower APR percentage will ensure that you are cheaper as well. 

Considering PCP for Different Types of Vehicles

SUVs: PCP finance is a popular choice for SUVs due to their typically higher price tags. The lower monthly payments allow you to drive a spacious, versatile SUV without breaking the bank.

Electric Cars:  As electric cars become more popular, PCP can be a great way to manage the initial cost. While electric cars generally hold their value well, the GMFV at the end of the PCP term can indicate any potential depreciation, helping you decide if purchasing the vehicle outright makes financial sense.

Commercial Vehicles:  PCP can benefit businesses looking to manage their cash flow. The lower monthly payments allow companies to acquire essential commercial vehicles without a significant upfront investment. It’s important to note that tax implications for commercial vehicle PCP may differ from those for personal vehicles. Consulting with a financial advisor is recommended.

What are the Benefits and Drawbacks of PCP Finance?

As with any large loan, there is plenty to consider before putting pen to paper:

Benefits of PCP:

  • Lower Monthly Payments: Compared to other types of car loans, PCP offers lower monthly payments.
  • Flexibility at the End of the Term: The end-of-term options in PCP provide flexibility. You can choose to own the car, return it, or potentially move on to a new model.
  • Potentially Drive a New Car More Often: PCP allows you to upgrade to a newer car every few years by simply returning the current one and entering a new PCP agreement.

Drawbacks of PCP:

  • May be Subject to Mileage Restrictions: Some PCP agreements have mileage limitations. Exceeding these limits may incur additional charges at the end of the term.
  • Early Termination: PCP agreements may have penalties for early termination. Understanding these terms before signing is vital.
  • Likelihood of Acceptance: PCP deals tend to have lower interest rates than other forms of car finance. If your credit score isn’t where you’d like it to be, you may have more success getting accepted with a Hire Purchase deal. 

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