PCP Agreements

Contents

Overview

PCP agreements can be a good option if you like changing cars regularly and prefer lower monthly payments. However, it's important to understand all the terms and conditions, consider how you plan to use the car, and determine what you'll do at the end of the agreement. Always compare different financing options to find the best one for your needs and budget.

What is a PCP Agreement?

A Personal Contract Purchase (PCP) is a type of car finance that allows you to lease a car for a fixed period, usually between 2 to 5 years, with the option to buy the vehicle at the end of the agreement. I


t's a flexible way to finance a car with lower monthly payments compared to traditional hire purchase (HP) agreements.

How does PCP work?

You start by paying a deposit, typically between 10% and 30% of the car’s value.


You then make lower monthly payments for the duration of the contract. These payments cover the depreciation of the car, not its entire value, making them generally lower than other financing options.


The lender will set a Guaranteed Future Value for the car, which is the predicted value of the car at the end of the agreement. This amount is also known as the balloon payment.

At the end of the term, you have three options:

Considerations

Your agreement will include a mileage limit. Exceeding this limit can result in excess mileage charges.

Upon return, the car must be in good condition. Charges may apply for any damage beyond normal wear and tear.


Be aware of the interest rates applied to your payments, as they affect the total cost of financing.

PCP deals are based on the car's predicted depreciation. A car that holds its value well is generally more cost-effective in a PCP deal.

How to apply

Applying for a PCP loan requires careful consideration and planning, but by following these steps, you can ensure that you choose the best possible deal for your financial situation and vehicle needs.


Check Your Credit Score

Your credit score significantly impacts your ability to get a PCP deal and the interest rates you'll be offered. A higher score usually results in better terms.

Check your credit score with, Experian, Equifax, or TransUnion.

Check your Affordability

Determine how much you can afford to pay monthly and upfront as a deposit. Remember, a larger deposit typically reduces your monthly payments.

Research Vehicles: Decide on the type of vehicle that suits your needs and budget. Consider the car’s residual value, as it affects the Guaranteed Future Value (GFV) and hence the PCP terms.

Find a Dealer or Lender

Visit dealerships that offer the vehicle model you're interested in. Dealers often have partnerships with finance companies and can offer competitive PCP deals.


Alternatively, look for financing options directly from banks or specialised automotive finance companies. Comparing offers is crucial to finding the best deal.

Get Quotes

Obtain quotes for the PCP agreement on the vehicles you are interested in. Ensure the quotes include details on monthly payments, deposit, term length, interest rate, and GFV.

Carefully review the terms, paying close attention to the mileage limit, what happens at the end of the agreement, and any fees for exceeding mileage or damage to the vehicle.

Apply for the PCP Loan


Once you select a dealer and a loan offer, you'll need to fill out an application form. This will likely require personal information, details about your finances, and employment.

Prepare to provide proof of identity (e.g., passport or driver's license), proof of address (e.g., utility bill or bank statement), and proof of income (e.g., payslips or bank statements).

Finalise the Agreement

The lender will review your application and perform a credit check. If approved, they will provide you with the finance agreement.

Read the contract thoroughly. Ensure you understand all the terms and conditions before signing.

After signing the agreement, you'll pay the deposit, and then you can take possession of the vehicle.

Plan for the End of the Term


As you approach the end of the PCP term, consider your options—return the vehicle, pay the GFV to own it, or use any equity towards a new PCP deal on a new vehicle.

Additional Tips


Look out for special offers from dealerships, especially during promotional periods, which may include lower interest rates or contributions towards your deposit.


Don't hesitate to negotiate the price of the car and the terms of the PCP agreement. The sale price and initial finance terms are not always final.

Pros

PCP agreements can be a good  flexible credit options to buy a car. Please see the list of advantages below:


Cons

PCP agreements might be more costly overall and come woth drawbacks. Please see the list of disadvantages below: