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Personal Contract Purchase - PCP deals explained

What is PCP car finance,

A PCP is a car loan but unlike a standard car loan you will not be paying the full amount of the car, instead you pay a deposit followed by a fixed monthly payment over an agreed period, usually 3 – 5 years and then at the end of the contract you can opt to keep, replace or simply return the vehicle subject to mileage and condition.

PCP or Personal Contract Purchase is designed to give you choice. People often refer to their PCP deal as a personal lease car and if you wish to use the car for the contract period and then give it back in effect it is, but there is a difference. A lease car is never owned by you but with PCP finance you can have eventual ownership should you so wish.

How does PCP work
1/ you decide how much deposit you wish to pay between zero and 30% of the invoice value of the car.
2/ the length of the contract you would like, normally 36 - 60 months.
3/ the mileage you will cover during the contract period.

NOTE it is important to work out the correct mileage you will cover during the contract, if you go over this agreed mileage and wish to hand the car back you will have to pay an excess mileage charge (this is charged at a pence per mile rate).

At the end of the PCP contract you have 3 choices.

If you opt to keep you will pay the MGFV (minimum guaranteed future value) and take full ownership (this could be quite a considerable amount), if you are not able to pay the MGFV off in one lump you may wish to refinance this amount.

Sell or replace your vehicle you may wish to part exchange your car for a new PCP deal or just sell it, remember if your car is worth more than the MGFV (minimum guaranteed future value) this difference can be used as the deposit for your next PCP finance agreement or if you do not wish to take PCP car finance again it is yours to keep. An example would be…. if your car is worth £6000 and the MGFV is £5000 you would have £1000 towards the deposit for your next PCP car deal. Remember there is NO GUARANTEE that you will have any equity in your vehicle at the end of the contract.

Return the vehicle you may at the end of your PCP contract not require the vehicle anymore, you can simply hand it back to the finance company (subject to the vehicle being serviced correctly to the manufacturers specification, being in good order with no accident damage or abuse and the current mileage being below the agreed contract mileage), your local Car Leasing Bargains dealer will give you an indication of any work that may be required before returning the car.

Remember YOU ARE GUARANTEED that if your car is not worth the MGFV you can hand it back and walk away owing nothing (subject to vehicle condition etc).

An example would be….
If at the end of the contract your car is worth £4000 but the MGFV is £5000 you will not have to pay the £1000 difference. This gives greater piece of mind when making such a large purchase and if your make and model of car were to appear on the TV with bad press making it very undesirable you have no need to worry.

To be clear if your vehicle is not worth the MGFV you do not have to pay the difference.

The Great thing about PCP

PCP deals can make a more expensive or better equipped car more affordable than you may have first thought. Here is why, as you are only paying for the bit you use (depreciation) and the cost of money (interest), a vehicle that holds its value, bought well and on excellent finance rates will be more affordable than a car with a lower future value. Most leasing companies are well placed to purchase a car for you at a great price and because they sell a lot of finance their rates are preferable.

Don’t be sold a PCP deal in the wrong way.

It is important to understand right from the start, if you wish to have future PCP funded cars to save any upset stick to this rule whatever deposit you put in first time around you will need to put in next time to keep your repayments somewhere near your existing payment.
For example: - If you own a vehicle outright now and it is worth £5000 and you are going into your first PCP deal if you put the whole amount down as a deposit, your monthly payment will be quite low but the next time you may not have a spare £5000 and your monthly payment could rise by as much as £150 to get you into a similar new car.
If you choose to PCP your new car remember to make the deposit an amount you will be able to easily afford next time so that you can stay in a car that suits your requirements fully.

Many people don’t know this!

When you buy a car on hire purchase or personal contract purchase as a private individual you have the 1974 consumer act behind you. This piece of legislation is there to protect you!
Here’s why: -
The loan is secured on the car only (your house is safe)

Once you have paid a third of the total amount payable the finance company must get a court order to repossess the car.Most finance companies these days if you contact them and discuss your situation will try to be amenable.

At half the total amount payable, you can hand the vehicle back subject to service history and that you have taken reasonable care of the car (no major dents scratches or mechanical problems).
N.B. The total amount payable is the original cost plus charges: - Cost of car £10000 interest £2000 = Total amount payable £12000.
Should you have problems with your car you can speak to the finance company who will contact the supplier and try to help that situation. (I don’t think your bank manager would do this if you bought with a personal loan from him).

Below is a typical example of our No Deposit PCP car deals

Used 2015 15 Plate Fiat 500 Hatchback 1.2 S 3dr APR 8.9%
Cash Price £7199.00
Deposit £0.00
Balance payable £7199.00
Repayable by 48 payments of £132.32
Optional final payment of £2596.26
Interest charge: £1748.62
Total amount payable £8947.62
Based on a 49 months personal contract purchase10,000 miles per annum.

remember you can alter the deposit or the mileage to suit your requirements

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Posted on 14th November 2016 at 5:06 PM

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