PCP Car Finance Explained
PCP car finance stands for Personal Contract Purchase and is one of the most popular financing methods used today for car purchases. PCP car finance can offer uniquely low and affordable payment methods on a monthly basis which have an added bonus of flexibility at the end of the contract. In a PCP car finance plan the finance company will purchase the vehicle of your choice on your behalf and then loan the car to you for a fixed monthly rate.
At the start of your PCP car finance contract the finance company will work out exactly how much the car is likely to cost at the end of your contract given the data they collect on expected mileage of use and the car in question. This figure is then used to calculate the “Balloon” sum at the end of the contract by comparing it to your monthly finance payments. At the end of your contract you can choose to either; close the contract and therefore terminate your possession of the car, trade the car in for a new car and establish a new PCP plan or pay the balloon sum to make up the remaining costs of the car therefore passing ownership to yourself.
The benefit of entering into a PCP car finance deal is the flexibility it can offer you depending on your situation at the end of the contract. If you are happy with your vehicle and you have set aside the correct balloon payment you can purchase the car in full at the end of your contract. If however you wish to try a different car at the end of your contract you can either sell the car and use the proceeds to cover the balloon payment and a future car purchase or you can trade in your car for a new one and obtain a new PCP plan. Finally, if you are unhappy with the car or the plan it self you can simply terminate the contract and have the car returned at the end of the term. You will not be able to get your money back through this method but you have effectively “hired” a car for the duration of the contract for an affordable amount. Under the PCP plan you are not obligated to purchase the car at all at the end of the contract and you have the choice to purchase the car if you wish, they won’t just take the car away at the end of your hire period.
PCP also offers security and peace of mind through its guaranteed minimum value set out at the start of your contract which means significantly reduced risk to you and your payment plan. In addition to this they ensure that your payments are much lower than a standard purchase premium allowing you to afford much more expensive cars than your budget would otherwise allow. PCP car finance plans also naturally come with a low deposit requirement allowing you to gain easier access to the car of your dreams.