It’s because the future value of the car is taken into account that PCP figures can look so attractive. This figure is provided by the finance house underwriting the agreement and is referred to as a Guaranteed Minimum Future Value, or GMFV.ĭuring the course of your PCP agreement, you’ll be paying off the difference between your car’s new price and the GMFV figure. What you pay under a PCP agreement essentially covers the depreciation experienced during the agreement.įor example, when setting up a three-year PCP agreement, the dealer will know what the car will be worth in three years’ time. All cars naturally lose value over time (which is referred to as depreciation). With a PCP agreement, you’re not actually covering the cost of the car. A PCP is a little more technical, though, and takes some understanding. You take the cost of the car, subtract a deposit, add some interest and then divide the whole by the number of payments. The process outlined above pretty much mirrors what happens under a Hire Purchase agreement. You visit the dealer or online retailer, choose a car, pay the deposit, agree on a monthly payment and interest rate, sign the papers and drive away. How does PCP work?Ī PCP scheme is simple and can be rather appealing. Alternatively, search for low-rate finance deals on nearly new and used cars on BuyaCar. To work out what you can afford, you can get a personalised PCP quote for any car from our partners at Motiv. This is because manufacturers are keen to promote new car sales, so they will usually offer tempting deposit contributions and low-rate finance deals to secure buyers. Such is their popularity that PCP deals are also common for nearly-new and used cars, but oddly these can sometimes cost more each month than PCP for a new car. PCP finance is broken down into three key elements: Then we'll delve into what kind of PCP scheme to choose, how the terms should look, what happens during and after the agreement and we've also provided plenty of examples to help you understand it all better. We'll start from the very beginning, explaining what PCP is and how it works. We’ve put together a detailed guide to how PCP works, including some example PCP finance plans below. If you’ve decided that a car finance agreement is the right option for you, it’s understandable that you might feel daunted by the large amount of information there is to take in. PCP finance provides a more realistic solution that allows you to pay over a few years via low monthly payments - there are many great PCP deals to be had and you'll often have some room to negotiate on prices. Saving the thousands of pounds needed to buy a new car outright is impossible for most people. PCP vs HP – which type of car finance is right for you? It’s a more realistic solution for many buyers – there are many great PCP deals to be had and you might even have some room to negotiate on prices. Saving thousands of pounds to buy a new car outright is an impossibility for most people, and PCP deals offer a good balance between low monthly payments, while leaving the option to buy the car outright at the end without any of the obligation. In an HP deal, the balloon payment is taken at the start of the term, and you will own the car once you pay off the last monthly instalment – these deals usually last for three to four years. A large amount of the debt is left to pay at the end of the agreement as a balloon payment you can choose to pay if you want to own the car, or you can hand it back. In a PCP deal, you pay off a portion of the car’s value (usually the amount the lender predicts the car will lose in value over the term, minus an initial deposit) in low monthly payments. PCP differs mostly to PCH, as PCH is merely a long-term lease that isn’t designed for you to purchase the car at the end of your agreement. PCP is a good idea if you want the option to buy the car at the end of the agreement, and usually offers low monthly payments, making it particularly popular among UK motorists – in fact, some estimates suggest that more than 90% of new cars are purchased through a PCP plan. PCP is slightly different to other car financing methods, such as Hire Purchase (HP) or Personal Contract Hire (PCH), also known as leasing. PCP, or Personal Contract Purchase, is a popular type of finance when buying a new or used car.
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