What is PCP? (Personal Contract Purchase)
Read our guide on how to understand the most common form of car finance
PCP: Personal Contract Purchase is a common way of financing a car by paying an upfront deposit followed by monthly payments set over a standard duration usually between 12 and 48 months, followed by an optional final payment if you wish to keep the car. With around 80% of all new cars being purchased on finance and the most common method of paying for the car being PCP, it’s a great way of driving the car you always wanted and spreading the payments over time.
Also see: Our guide to Hire Purchase (HP) Finance
If you’ve always wondered how your neighbors are able to afford a new car every few years, they possibly are paying for their car on a personal contract purchase deal. Rather than paying for the car in one lump sum as you would when paying cash you spread the cost with affordable monthly payments and a larger payment at the beginning and end of your contract.
By law, PCP deals must be clearly laid out and easy for consumers to understand. There are a lot of numbers to consider but with our PCP guide you’ll become an expert at spotting the best possible deals and having a new car that will equally impress your neighbors.
How does PCP car finance work?
Simply put, you are paying for the car over time in the form of monthly payments. In order for you to get going you usually have to pay a deposit which can be negotiable and worth anything from 10% to 50% of the car’s value. That said some manufacturers offer zero deposit deals, meaning you can literally walk into the dealership with no cash and drive away in a new car.
- Deposit – To get going you need to pay a deposit. Usually you aren’t allowed to pay more than 30% of the overall car’s value and you can either pay by cash, part exchange or a combination of both. It’s not uncommon for some deals to require a very small deposit to get going, sometimes as little as the equivalent of one month’s payment. Some deals now offer zero deposit meaning you don’t have to pay anything upfront – this can mean that the monthly payments are more expensive however as there is more equity to pay.
- Monthly payments - You then pay a fixed number of monthly payments at a fixed price. Usually these monthly payments are spread over 18, 24, 36 or 48 months. The longer the duration usually the lower the monthly payment as the cost is spread out over a longer period of time.
- Final optional payment - When you contract is up you have three options: as long as your car is in good condition for its age, you can simply hand the car back. Or if you want to start another contract you can use the equity you have in the car as part exchange. Finally you can pay the optional final payment, otherwise known as the balloon payment, and you then become the owner.
Should I buy a car on finance?
When looking at finance sure you fully understand what you are signing up for. If you don’t understand, ask for your dealer who should be happy to explain it to you clearly or ask to go away and think about it, never feel pressured to sign up just because you can only be offered this price ‘today’ as this is rarely ever the case.
Be sure to check out our Best New Car Deals
Just because a car is advertised at only £199 a month doesn’t mean that’s all you’re going to be paying. Remember the excess mileage charge if you go over on the contracted mileage, the routine servicing that you must keep up with especially if you want to hand the car back at the end of your agreement as well as the day to day running costs. PCP deals mean you could potentially be driving a car you couldn’t otherwise afford by paying cash, but this could mean a rise in your fuel and insurance costs if you decide to go for a sports car or super saloon.
Some questions you should ask yourself
- Can I afford the monthly payments now and in the future? Will I be able to still afford the payments around Christmas for example
- Do I eventually want to keep the car? If so do I have the money in the bank now for the final optional payment or am I going to have to save this amount while owning the car?
- Will the mileage on offer cover my driving habits?
- Would I rather pay more upfront now and less per month? Or would I rather pay less upfront but more per month
- Can I get out of my PCP contract early?
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Disclaimer: This page is intended to provide information only, it is not, and should not be taken to be advice or an offer of credit. The information is subject to change without notice. Every effort has been made to ensure the accuracy of the information on this page and manufacturers or dealerships may vary the products or specifications of the products they offer. For full terms and conditions contact the relevant manufacturer or your local dealer. Imagery is a visual representation and may not represent the exact products. Please ensure you can afford the monthly payments before signing any contractual agreement. You will not own the vehicle until all payments have been made. Any finance or offers mentioned are not available in conjunction with any other offer and may be varied or withdrawn by the manufacturer or dealer at any time.