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Buying a Car through Personal Contract Purchase: PCP Explained


PCP is a common method of finance for consumers wishing to change their vehicle between 2 and 4 years. PCP offers flexibility and low monthly instalments; although these don’t cover the full cost of the car. 

What is Personal Contract Purchase?
PCP is in its rawest terms; is a loan to help you get your new vehicle. But unlike a personal loan, you won’t pay off the full value of the car and you will not own it at the end of the deal – unless you decide to.

PCP is one of the more complex financial products available to help you buy a vehicle, but it can be broken down into three parts:

The deposit.
Typically around 10% of the cars value. The larger the deposit, the less you’ll have to borrow and lead to lower monthly payments.

Monthly payments.
The amount you will have to borrow is based on how much the finance company predicts the car will lose in value over the term of the deal minus the deposit you have put down. You’ll pay this amount off during the deal, plus interest. So you are not paying off the full value of the car.

Final payment.
At the end you can return the car, or make the final balloon payment and own the car outright. 

How does Personal Contract Purchase work?
Here is an example of how your deal could look. Let’s imagine you sign up for a PCP over three years to buy a car with a ticket price of £18,000. You put down a deposit of £2,000 and the finance company calculates that the car will be worth at least £8,000 after three years:

To ‘borrow’ the car you pay:
Deposit: £2,000
Loan: £8,000 (£10,000-£2,000) plus interest

Total: £10,000 plus interest

To buy the car you pay:
Deposit: £2,000
Loan: £8,000 (£10,000-£2,000) plus interest
Balloon payment: £8,000
Total: £18,000 plus interest

When you are ready to buy a vehicle; apply online with us here at Car Finance Deals. We will then pass your application over to the lenders and choose the best deal we can tailored for you. Once approved; you can decide over how many years you want to repay the loan and whether you want (or need) to pay a deposit. Then the fun part; selecting your vehicle. You can choose from thousands of vehicles in the UK or we can help select a vehicle for you.

Click on the following link to apply: https://www.carfinancedeals.com/apply

What happens when you get to view the vehicle?
This is the best part. Travel to the dealership and if you like what you see; drive it away! Because the paperwork has been done; all you need to do is decide if you want the vehicle or not! No hassle.

What is the difference between Personal Contract Purchase and a loan?
When taking out a loan; the car is yours as soon as you buy it. You obviously still need to pay the loan off, plus any interest. With PCP the car is not yours and will not be unless you decide to make a final lump sum payment at the end of the financial agreement.

What happens at the end of the PCP finance deal?
There is three options on how you can proceed at the end of the agreement:

Own the car outright by paying the balloon payment
End the agreement by handing the car back to the finance company
Part Exchange the vehicle for another car

Could i face any other charges at the end of the PCP finance deal?
You could face charges if you hand the car back through excess mileage charges or damage charges. Both are of course avoidable. At the start of the agreement you will advise how many miles you will do each year and if you go over the agreed limit the finance company will charge for this at the end.

Personal Contract Purchase Pros and Cons
Work out whether PCP is right for you

Pros
If you want to hand the car back or trade in for an all new model, as most PCP customers do, it’s a good option.
You get to drive a new car for lower monthly repayments than a personal loan or hire purchase.
A PCP agreement may let you buy a more expensive car than you might otherwise be able to afford with monthly payments to suit your budget
PCP is flexible. You have several options at the end of it; including the possibility to purchase the car if you like.

Cons
If you want to take ownership of the car at the end of the term, PCP will often prove more expensive than hire purchase finance deals.
You won’t own the car during the contract period and will only own it at the end if you pay the balloon payment.
Extra charges will be added at the end of the agreement if you go over the agreed set mileage or via damages that’s not down to normal wear and tear.

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