Best PCP deals
When buying your car these days, you’ll find that many people opt for used car PCP deals (Personal Contract Purchase). PCP car finance offers lower monthly payments, meaning you can likely get a better car than you could otherwise.
Manufacturers offer appealing PCP deals on new cars as it’s so popular. A new vehicle can mean up-to-date tech and peace of mind. You’ll have something reliable and don’t need to worry about getting its MOT done for three years.
However, a new car doesn’t feel worth the money for many of us. Cars depreciate as soon as you drive them away from the dealership! Thankfully, PCP deals are also available on used vehicles.
What is PCP car finance?
Monthly payments on car PCP deals are considerably cheaper than other car finance deals during the contract term – PCP car finance delays a large part of the payment until the end of the contract.
The flexibility of the best PCP deals means that annual mileage, length of the finance agreement and even a lower deposit amount are adaptable to your needs.
The distinct advantage of used car PCP car deals (Personal Contract Purchase) is they give you options. You don’t have to buy the vehicle at the end of the contract term, but you can!
How do PCP deals work?
PCP deals have two essential parts, three if you buy the car at the end of the agreement.
- Deposit – At the start of the finance agreement, you want to consider a deposit – although no deposit PCP deals are available, the more you put down, the less your repayments are. If you wish, you can often pay just a one-month initial deposit.
- Monthly payments – the amount you borrow and pay back with monthly instalments is – the value the dealer/finance company estimate the car will depreciate over the contract term.
- Balloon payment also GMFV – Finally, you’ll need to pay the Guaranteed Minimum Future Value if you want to keep the car after your PCP finance agreement. Don’t worry, though. You don’t need to decide until the end of the deal!
A point of caution if you decide to return the car at the end
Mileage – With PCP deals, you must agree to a total mileage limit for the car; this helps the finance company calculate the amount the vehicle will depreciate. You’ll get charged if the vehicle has excess mileage.
Damage – car finance companies expect on return of the car the condition to correspond with the age and mileage of the vehicle and will accept damage deemed to be fair wear and tear. Damage penalties will apply if the car is not up to scratch.
What is a GMFV/balloon on a PCP deal?
The Guaranteed Minimum Future Value (GMFV), also affectionally known as the ‘Balloon’, makes PCP deals unique from other car finance.
The payment of the GMFV is optional and does not occur until the end of the finance agreement. That is why monthly payments during the agreement are considerably lower with PCP than with other car finance.
At the end of the PCP agreement, it is the ‘Balloon’ you’ll have to pay to keep the vehicle.
How do the payments work on PCP deals?
Setting up the PCP agreement
Suppose you want to finance a new car worth £12,000 over 36 months. And you pay a 10% deposit, that’s £1,200.
Your loan is £10,800 (£12,000 less the £1,200 deposit).
Next: The finance company calculates the vehicle’s future value will be £7000 (the GMFV) at the end of the 36 months.
What you pay
The PCP loan is £10,800: However, because the car’s value at the end of the contract is £7,000 (the GMFV), you only repay the difference of £3,800 (£10,800 less £7,000) (plus interest on the £10,800) over the 36 months.
You’ll pay interest on the total value of the loan, even if you return the car.
Your options at the end of the contract
You pay £7000 to own the car or return the vehicle with nothing to pay (assuming there is no damage and you’ve kept to the agreed mileage).
Check these details when comparing PCP deals
- APR, you’ll be paying.
- Total amount repayable to buy the car at the end of the contract.
- The total cost of interest.
- Any additional fees.
Can you get used car PCP deals?
Yes, you can find PCP deals on used cars, but it’s a bit more involved because of the car’s age.
Perhaps the best of both worlds, many manufacturers offer ‘Approved Used’ cars. These are used vehicles that the manufacturer’s mechanics have thoroughly checked over, and they typically come with a warranty. While they’re a bit more expensive than a used car from Dave down the road, they’re likely to be newer and more reliable.
Whether you go for a PCP deal on a used or a new car, it works more or less the same. A Personal Contract Purchase on a used vehicle will likely require an initial deposit and monthly payments over the stated term (usually) two to four years. You can either give the car back or pay a final amount to own the vehicle outright at the end of the term. This balloon payment is usually a few thousand. Finance Companies can charge monthly repayments lower than most other deals by adding the balloon payment at the end.
While you can use manufacturer-backed finance for ‘manufacturer-approved used’ cars, you can also get PCP finance from a car dealer or online broker.
Many lenders will also offer PCP deals on a vast range of cars ranging from:
- Nearly new cars (less than one-year-old with under 5000 miles on the clock) used and older used cars.
- Manufactured approved used cars
- You can find PCP deals on used cars, which will be ten years old when the contract ends.
Can you get PCP deals on all used cars?
It is up to the lender whether they decide to offer PCP deals on used cars. It’s essential for the finance company that the future value of the second-hand car won’t be too low or hard to predict (as this influences the balloon payment). If you shop around, you’ll likely be able to find a used car at low monthly payments.
Some finance lenders won’t offer Personal Contract Purchase on certain cars – the final value of the vehicle will either be too low or too volatile to predict. For example, many lenders won’t lend on a car that will be ten years old (or over 100,000 miles) at the end of the contract term. You’ll need to look at this on a case-by-case basis, but generally, lower monthly payments are possible to get on second-hand cars up to a few years old.
Is there a downside to a PCP finance deal with no deposit?
You are looking to swap your car for something newer on a PCP car deal.
What about a down payment/deposit?
You could use those savings you have diligently put away, but you would prefer not.
But maybe you don’t have to use your hard-saved cash on a car deposit as most lenders offer No deposit PCP car finance even to new drivers.
That’s good, but what’s the catch to getting a PCP car deal with no deposit – will there be consequences?
For the privilege of not paying a deposit on a PCP deal, you’ll likely pay a higher interest rate APR than you would if you put a deposit down.
It’s worth knowing that no-deposit deals are typically for people with an excellent credit rating.
New car PCP car deals
You’ll find that manufacturers might offer no deposit or contributions, low-interest rates, and sometimes incentives such as free servicing. It’s also common for many manufacturers to provide reasonable trade-ins on a part exchange on your existing car.
Signing up for PCP car finance is a breeze, and you can often be in and out of the dealer in the afternoon!
Can I get manufacturer deals on used car PCP finance?
If you’ve been looking around at cars, you’ve probably seen some advertisements with attractive PCP finance deals. These often include buzzwords like ‘0% interest rates, ‘deposit contributions’, or even ‘no deposit’. The best deals will come from the manufacturer, and rarely will you find similar deals on used cars.
Unfortunately, you will unlikely find no deposit PCP deals on used cars. Most will require a deposit of around 10-25%, and it’s rare to see any other incentives.
How long is a PCP contract?
There’s no hard and fast rule for how long a PCP deal can last. It’s really at the lender’s discretion. However, you can typically expect two to five years contract lengths. The shorter the finance agreement, the higher the monthly payments will cost you – but the quicker you can swap the car for something new.
If you’re applying for a PCP deal on a used car, you might find that you’re only offered a three-year maximum term on some vehicles. The car might be too old by the time you hand it back to be profitable for the finance company.
What happens at the end of a PCP deal?
At the end of PCP car finance deals, you have three options:
- Hand the car back and nothing more to pay. (Unless you have mileage or damage penalties)
- Pay the optional final payment and own the vehicle; this is usually a relatively large number (often in the thousands!)
- If the car is worth more than the GMFV, you can return the vehicle and use that equity towards a new PCP deal.
Do you get any money back at the end of a PCP?
The main way drivers can get money back is through ‘trading in’ a car on PCP with equity. That means that the place you’re purchasing a new vehicle will effectively pay off your current vehicle’s finances. Putting the extra value in the car towards the one they’re selling you.
What are the pros and cons of PCP deals?
While one of the most popular finance options, PCP car finance has some drawbacks. Here are the pros and cons:
- You can drive a newer car.
- Lower monthly repayments than other car finance, where you keep the vehicle at the end of the contract!
- You have a lot of flexibility at the end of the agreement. You can get the car and decide later you don’t want to own it outright. You have no obligation to pay the optional final payment!
- You’ll have to pay a pretty hefty sum to own the car at the end of the PCP car finance agreement.
- You’ll need to agree to an annual mileage and be careful about the car’s wear and tear or damage.
- Some finance companies might require you to pay an initial deposit.
PCP v Hire Purchase
The Hire Purchase HP and PCP deals are the most common car finance options. They’re much easier to get than a personal loan or a car lease. They’re also similar in that you pay fixed monthly payments to the finance company.
However, there are some significant differences to consider. If you want to own the car at the end of the finance agreement and aren’t concerned with higher repayments, go for the HP. You also have the bonus of no mileage restrictions!
If lower monthly repayments are more important than ownership, you’ll want the Personal Contract Purchase PCP deal. But be aware that you’ll have mileage restrictions, and need to keep the vehicle in tip-top condition if you’re handing it back.
You can purchase the vehicle at the end of a Personal Contract Purchase PCP deal, but you’ll have to pay a chunky (balloon payment)!
PCP finance vs Personal Loan
f you want to own a car, a personal loan is better than a Personal Contract Purchase or PCP car leasing.
You own the vehicle immediately after you hand the money to the dealer! You have the flexibility to sell or modify your car if you wish.
However, car loans often aren’t a choice for younger drivers or those with poor credit. Getting personal finance can require an excellent credit rating. The monthly payments are considerably higher than with PCP finance.
If you want a newer vehicle every couple of years and don’t care about ownership, opt for the PCP.
PCP finance vs Car Lease
A lease has a lot of similarities to a PCP deal. You pay a set monthly amount, have a mileage limit, and must keep the vehicle in decent condition. The main difference is that you have absolutely no opportunity to buy the vehicle at the end of the contract term with a car lease.
However, the upside is that your monthly payment is often lower. Usually, you can only get a car lease on a new vehicle. A Personal Contract Purchase might be more affordable even if you don’t want to own the car.
Do I need to service a car on a PCP deal?
In most cases, you’ll have to get the vehicle MOT’d and serviced during the PCP term (unless the car is new). If you get the vehicle from the manufacturer, you might need to get it serviced at an official manufacturer’s garage. If you get it from another finance company, you can get it seen at a ‘reliable garage’ of your choice.
Can I settle a Personal Contract Purchase PCP deal early?
Suppose you wish to return a car under a Personal Contract Purchase deal early. You can end the contract whenever you want!
The lender will calculate a settlement price you need to pay to end the contract.
When calculating the settlement amount, the finance company can only charge you up to two months’ interest on the balance.
Ending the contract early should reduce the interest you pay compared with continuing with the PCP finance. On owning the car outright, you can keep or resell the vehicle.
Voluntary Termination on a PCP
Under the Consumeryou’ret Act 1974, you can return a vehicle on a Personal Contract Purchase deal with nothing more to pay if you have paid at least 50% of the total finance – this is called Voluntary Termination.
Is a PCP deal the right choice for you?
If you’re a driver who wants to change their car regularly, a Personal Contract Purchase can be a great option.
However, if you’re not the most careful driver or log many miles in your vehicle, then a PCP vehicle deal might not be the right choice. You’d probably be better off with a Hire Purchase or Personal finance!
Can I use a PCP deal to finance a used car?
YES. If you've found a car a few years old, you can usually finance it with PCP car finance. However, the APR is higher with used cars on a PCP than with a new car. Typically, the older the used car, the bigger the depreciation, meaning it's unlikely the dealer has much chance of getting worthwhile equity in the vehicle when returned.
Therefore, the interest charged on the PCP is the best place dealers can make money from a PCP deal on a used car.
How can I make the PCP car finance repayments as low as possible?
Set a budget for the car, including running costs and don't overstretch your finances.
1. Cheaper car - If the monthly repayments on a car look too high, go for a more affordable vehicle.
2. Deposit - Paying a bigger deposit and stretching the repayments over a longer term can significantly reduce the repayments.
3. Low depreciation - Choosing a car that retains its value will also reduce the repayments.
4. Lower mileage - Ensure you focus carefully on your annual mileage – setting a lower mileage will also reduce payments. However, don't set the mileage too low because excess charges can be hefty.
What is the mileage limit on PCP car deals?
Calculating the cost of a PCP agreement involves setting a mileage limit – the distance you will drive during the agreement term. The mileage limit helps set the GMFV/balloon payment due at the end of the contract if you wish to purchase the vehicle.
A car with high mileage will be worth less at the end of the contract than one with low mileage. Therefore lower mileage contracts tend to have cheaper monthly repayments.
Don’t underestimate your mileage to get lower monthly instalments. Exceed the mileage limit, and you’ll have onerous excess mileage charges when the contract ends. You’ll likely have to pay even if you return the vehicle.
Can I get PCP with no deposit?PCP car finance (Personal Contract Purchase) and HP (Hire Purchase) deals are available with no deposit. The negative side to not paying a deposit is car dealers are likely to charge a higher APR.
What are the options at the end of a PCP agreement?
1. Give the car back and walk away to avoid paying the balloon payment.
2. Hand the car back and use any positive equity towards a new car finance deal.
3. Pay the optional balloon payment and keep the car. You could refinance the car to make the final payment.