In recent years, the way we acquire automobiles has changed. Twenty years ago, you’d buy a new car, drive it until it broke down, and buy a new one when the repairs cost more than the car was worth. Today, drivers can get a new car every few years thanks to the different financing options, with PCP Car Finance being one of the most popular. For many people, PCP agreements are attractive because they enable them to purchase a new car on a limited budget, or they may upgrade to a vehicle that would otherwise be out of their price range.
Most individuals cannot save enough money to purchase a new automobile entirely. It’s possible to get a vehicle for less than £150 a month using PCP financing, enabling you to spread out the cost over a few years. But what exactly is it? And more importantly, is it the appropriate form of auto financing for you? Let us investigate.
What Exactly Is PCP Car Finance?
PCP stands for Personal Contract Purchase, but the acronym doesn’t tell you anything about this kind of auto financing. The first step in using PCP is to put a deposit on the automobile you desire. You’ll then make monthly payments for a predetermined period before paying a flat fee to dissolve your arrangement. However, you will only be required to pay this lump fee if you choose to retain the automobile after the agreement. If you decide not to maintain the car, you may return it to the dealer, and the arrangement will terminate. You may then begin a new agreement on another automobile if you desire. Dealers realize there’s a good chance you’ll do this, and they like it since it secures your recurring business.
A loan is what PCP auto financing is. Finance will most likely give a source with whom the dealer has collaborated to supply it to you. To be accepted for a PCP plan, you must fulfil the financing provider’s requirements, and the checks they will do to ensure you match their criteria will most likely involve a credit check. So, now that you’re thinking about purchasing a vehicle, it could be worth your time to check through your credit report and make sure it’s in good enough shape to qualify for auto financing.
While PCP plans used to purchase brand new vehicles, some dealers now offer them on used cars. PCP operates in the same manner whether you are buying new or old. You’ll still have to make a down payment, monthly payments, and a final lump amount. However, some special deals offered when using PCP to purchase a new vehicle, such as cheap deposits or lower interest rates, may not be accessible when using this kind of auto financing to buying a used car.
How does PCP function?
When you select PCP auto financing, you will pay a deposit at the start of the plan, monthly payments during the project, and a lump amount at the conclusion if you wish to retain the vehicle. Doesn’t that seem simple? Hold on because it’s not as straightforward as it looks.
When you sign up for a PCP, you agree to terms and conditions that decide how much the vehicle will value after the period. These will include maintaining the car in excellent condition, getting it serviced regularly, and adhering to a mileage limit. You’ll ask how many miles you anticipate driving so that the plan is realistic and allows you to utilize the automobile as needed. These criteria use to calculate the Guaranteed Future Value, or GFV, of the vehicle. Estimated post-agreement values are known as “GFVs.” It is helpful to calculate the lump sum amount that you will expect to pay following your PCP and determines your monthly payments.
Consider the following example:
- The car you wish to purchase has a list price of £20,000 (the sum you’d pay if you bought it outright).
- The GFV costs £12,000 – £8,000 less than its advertised price after a three-year PCP agreement.
- This difference is what you will pay throughout the life of your PCP.
- You have a £2,000 deposit, leaving you with £6,000 to pay over the next three years.
- It comes to a total of £166.66 every month.
- To retain the vehicle after your PCP, you must pay a lump amount of £12,000.
- But keep in mind that there is also interest to be paid.
The example we just gave you gives you an idea of how PCP works, but it’s too essential since it doesn’t account for the interest you’ll pay, although a PCP arrangement is a loan. In actuality, your monthly payments will make of your down payment plus interest on the cost of the automobile. What interest rate you’ll be paying is determined by what the dealer and their financing partner have to offer and your circumstances. If you can make a larger deposit, you will lower the amount you need to borrow via the PCP and minimise your interest payments.
Shop around and acquire a few samples of PCP agreements to evaluate, just as you would with any other purchase. Check everything to ensure that the offer is as fantastic as it seems. A modest deposit may seem to be a good idea, but it means you’ll be borrowing – and paying interest – on a more significant sum, potentially costing you more in the long run than if you put down a larger deposit.
First and foremost. Personal Contract Purchase, or PCP Car Finance for short, is one of the two primary forms of automobile financing options. The second option is Hire Purchase (HP) – we’ll be posting a tutorial on this sort of car financing soon, so stay tuned. PCP offers the best of all worlds when it comes to auto financing. It includes the option to purchase the automobile at the end if you want to, but you’re not required to if you’d instead switch it for something else or give it back and walk away after your plan.