PCP Car Deals at Stoneacre
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.
There are a few components to a PCP deal (some you may not recognise), and how it works may seem complicated at first; however, when broken down, it can be fairly easy to understand - let’s get started.
What is PCP Car 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:
- typically a deposit is paid at the start of the contract (though not always necessary)
- this is then followed by an agreed number of monthly payments
However, there are a couple of extra factors to a PCP deal over and above HP, especially come the end of the agreement.
Mileage
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.
GMFV
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.
End of contract options
There are three core choices available to you come the end of a PCP deal:
- Make the car yours
If you want to own the car at the end of the agreement, you can pay of the GMFV in full to immediately make that so. In addition, if you don't have the total sum to hand, then you can refinance the amount and pay it off until full ownership is complete.
- Part exchange for a new car
This is a solid and useful 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.
- Hand the car back
Where the GMFV also helps is when the car is worth less than this payment come the end of the agreement. While this means you don't have any equity towards a new car, it also acts as a safety net and you won't have to pay out the difference.
PCP Pros and Cons
For some, PCP deals work perfectly to their flexible lifestyle, but others prefer something a little more straightforward.
- Pros
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
- Cons
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 Cars for Sale on PCP Deals
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.
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.
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.