If you’re looking to get a car on finance, you may not know which car finance agreement to choose. One of the most popular car deals in the UK is a Personal Contract Purchase agreement which can suit a range of different drivers. PCP allows drivers to change their car more regularly, pay lower monthly payments and have more flexibility. With this in mind, how do you know whether you would be suited to a PCP car deal? The guide below has been designed to help you decide if a PCP deal is right for you and the factors you should consider before you commit to buying a new car.

How does Personal Contract Purchase work?

PCP is an easy way to finance a car. It is a form of hire purchase and is a secured loan which means the lender owns the car throughout the agreement and there are options to purchase the vehicle when the agreement ends. You take out a loan with the finance lender that equates to the value of your chosen car but most of the cost is deferred till the end in the form of a balloon payment. This means the loan amount tends to be smaller and monthly payments can be lower than other options. PCP deals are usually spread over 3-5 years, but you can choose a term that suits you and your budget. At the end of the agreement, you have three options.

1. Hand the car back to the dealer. As long as all payments have been made over the course of the agreement, you can hand the car back to the dealer and the agreement has ended. The car must be handed back to the dealer in good condition and within the agreed mileage or extra charges may apply.

2. Pay the large balloon payment. If you wish to keep the car and become the legal owner, you will need to pay the final balloon payment when the deal ends and as long as all payment have been made and the final payment, the car is yours to keep with nothing else to pay.

3. Refinance the balloon payment. If you want to keep the car but can’t afford the final payment. You could consider finding a lender who will refinance the balloon payment and spread the cost so you can own the car.

What are the benefits of choosing PCP?

There are many reasons why drivers get a car on PCP and there are plenty of cars to choose from. You can finance both new and used cars through PCP and it can be offered at dealerships and manufacturers.

Low monthly payments. Due to the structure of PCP, most of the cost is deferred till the final balloon. This means your monthly payments can be much lower than other finance options.
Get a newer, better car. Lower monthly payments mean that driver scan afford to get a newer, better car for their budget. PCP works especially well on brand new cars and even benefit from as little as 0% interest too.
More flexibility. Drivers who choose to finance their car through PCP can have more flexibility. You can choose to spread the cost over 3-5 years and to a term that suits your budget. If you like the freedom of being able to change your car more regularly, PCP allows you to do so as long as you keep the car in good condition and meet all payments on time.

What to consider before getting a car on PCP:

Whilst there are many benefits of getting a car on finance through Personal Contract Purchase there are a few factors you should consider before you commit to signing on the dotted line.

Budget first. Car finance is a legal agreement which means that you are agreeing to stick to the terms of the agreement and make every payment on time and in full till the ned of your chosen term. It’s important that you can afford to meet each payment as failing to do so can result in the car being taken away from you and more serious financial implications. You could use a free car finance calculator UK to see what type of loan you could get based on your budget and credit score.
Large balloon payment. PCP may not be the most beneficial if you wish to keep the car. This is because the final balloon payment can be thousands of pounds to pay and not may drivers can afford to pay back their finance whilst also saving towards the balloon payment.
Mileage and damage charges. At the start of the agreement, the dealer or lender will ask you to set an annual mileage so they can predict the value of your car at the end of the deal. Exceeding the mileage can result in additional charges when the contract ends so it’s important that you are accurate with your mileage. You will also need to hand the car back in a good condition and anything that goes beyond ‘general wear and tear’ can also result in additional fees to be paid.