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PCP Car Deals

If you’re looking to finance a car, there’s high chance that Personal Contract Purchase (PCP) will be on the agenda.

Much like Hire Purchase (HP), a PCP deal allows you pay for a new (or used) car over several monthly payments, though offers much more flexibility as a whole and is generally a more popular choice.

The way a PCP deal works may seem complicated at first, but, when broken down, it can be fairly easy to understand - let’s get started.

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What is PCP Finance?

PCP car finance is a flexible form of paying for a car over a number of months/years. There are direct similarities to HP finance, in that there is typically a deposit to be paid at the start of the contract, followed by a certain number of monthly payments.

However, there are a couple of extra factors to a PCP deal over and above HP.

Firstly, there is a mileage limit to adhere to during the contract; this agreed limit affects the monthly payment in so much that the more miles done during the contract, the higher the monthly payment and vice-versa. If you go over this limit, there will be a charge at the end of the contract for every mile over.

You may have also noticed that PCP payments tend to be noticeably cheaper than those of an HP deal - that’s because a large amount of the car’s value in a PCP finance deal is wrapped up in what’s called the GMFV - or Guaranteed Minimum Future Value - which acts as an optional final payment come the end of the contract.

The key word there is ‘optional’ – if you wish to make the car yours, you can pay this GMFV in full (or even refinance it) – however, you also have two additional options:

- Hand the car back after your last monthly payment and walk away

- Use any equity in the car to part exchange it for another

In terms of the latter, this is an option when the car is worth more than the GMFV come the end of the contract. The dealer will pay off the GMFV on your behalf, and the value over and above this goes towards your next car.

For example, if the car’s GMFV is £8,000 but it’s worth £9,000 at the end of the contract, you’ll have £1,000 of equity towards your next vehicle.

Whether or not there is equity in the car will depend mostly on the vehicle’s mileage when handing it back and whether it’s under the limit agreed at the start of the contract. The car’s condition will also affect its valuation at this point.

Example PCP Finance Quote

Cash Price: £15,017; Total Deposit: £2,249; Amount to Finance: £12,768; Monthly Payment: £179.99; GMFV: £6,547.50; Interest Payable: £2,429.02; Total Amount Payable: £17,446.02; Annual Mileage: 5,000 (20,000 contract limit); Excess Mileage Charge: 3.6ppm; Duration of Agreement: 49 Months; Number of Monthly Payments: 48; APR: 6.3%; Fixed Rate: 6.24%

You will likely find on many PCP deals offered by manufacturers on new cars a Manufacturer Deposit Contribution – this goes towards the total deposit for the vehicle on top of your own. For example, in the quote above, the Total Deposit is made up of a £1,750 Manufacturer Contribution and a £499 Customer Deposit.

The mileage, as you can see, is given on an annual basis. In this example, this is set at 5,000 miles a year over a four-year period, equating to a total 20,000-mile limit. This doesn’t mean you have to do 5,000 per year, it’s more that it gives you a 20,000 limit for the contract as a whole.

PCP Pros and Cons

PCP deals are popular due to the following advantages:

New car every two-three years – PCP deals give you the flexibility to switch cars much more often than Hire Purchase

Flexible ownership possibilities – multiple options available at the end of the contract

Lower monthly payments – the GMFV allows for typically lower payments than Hire Purchase

Deposit contributions – manufacturers and dealerships are able to offer contributions towards your initial deposit on plenty of PCP deals

Depreciation less of a worry – as you don’t initially own the car, the vehicle’s value isn’t an immediate concern

For some, Personal Contract Purchase has its disadvantages:

Final payment to own the car costly – the GMFV will be a large sum and needs to be paid to own the car, though can be refinanced

Additional mileage costs – extra charges may apply if you go over your mileage limit

Good credit score required – typically, a decent credit score is needed to get accepted for PCP finance

Damage to vehicle a consideration – if handing the car back at the end, you’ll likely have to pay for any damage caused during your time with it

Used Car PCP Deals

The popularity of PCP car finance has been largely due to its ability to help people afford brand new cars where a HP deal might have priced them out.

However, that doesn’t mean that used cars miss out on the advent of this finance type.

PCP on used cars is very much available, you just need to keep a couple of things in mind.

Firstly, it will depend on how old the car is as to whether you can finance it through a PCP deal, so ask ahead of time if you’re after such a finance package for a used car of interest.

This will also affect the length of the contract you’re able to take. While you can get a PCP deal on a new car of up to five years, given the age of a used car, this might be brought down to maximum of three. This is important to take note of as the shorter the contract, the higher the monthly payments cost.

In addition, a car’s cost can also rule it out of having PCP available if it its value is too low to accommodate this finance type.

Finally, you typically won’t get quite as much assistance on something like the deposit. While contributions from manufacturers and dealers are popular on new cars, used cars don’t tend to benefit from the same availability, so you may have to fork out more of your own money at this stage on a used vehicle.

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Finance Disclosure

For the purpose of this promotion Stoneacre is not acting as a lender but as an independent credit broker working with a panel of lenders. A list of these lenders is available upon request. Stoneacre do not charge a fee for an introduction to a finance provider, however, we may or may not receive a commission.

Decidebloom Ltd t/a Stoneacre, Omega Boulevard, Capitol Park, Thorne, DN8 5TX, is authorised and regulated by the Financial Conduct Authority. Our FCA number is 308726. You can verify this by visiting the FCA website or by contacting the FCA on 0800 111 6768.

Representative example
Cash Price£13,000
DepositNil
47 Monthly Payments£280.51
Amount to Finance£13,00
Total Interest Payable£2,743.97
GMFV£2,950
Total Amount Payable£16,133.97
Option Fee (Included in TAP)£399
Term48 Months
Rate of Interest (Fixed)8.83%
APR9.9%
Miles per Annum8,000
Excess Mileage Charge6.0ppm

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