Personal contract purchase (PCP) is the most popular way of financing a car. It’s often seen as a way of buying a car over three or five years but most people don’t go on to buy the car.
The following is an overview of PCP, including how it works. Make sure your aware of how PCP works before entering a contract.
A creditworthiness assessment will be carried out. This is based on two factors. First is the affordability of the PCP payments across the whole term of the contract based on your finances – think of it as finding out how difficult it is for you to keep up your repayments. The second is credit risk, which is the chances of you not paying your PCP loan back to the lender.
Here are the steps to getting a PCP deal:
- You’ll need to pass a creditworthiness assessment before the PCP is set up. Before you sign up for a PCP deal, it’s really important to make sure you have worked out that you can afford to meet all payments over the whole term of the contract, which could last up to four years.
- You may need to pay a deposit, usually 10% of the value of the vehicle.
- Use the car and make your payments for the duration of the contract. Make sure you stay within your mileage restriction. There will be charges if you go over your limit.
- If you want to keep the car, you’ll need to make a final payment, often called a balloon payment. This is based on what the dealer thinks the car is worth now – Guaranteed Minimum Future Value (GMFV) and can range from a few hundred to a few thousand pounds. It will be a larger payment than your monthly payment. If you haven’t got this money saved, you may have to take out another loan to pay it off.
- If you’re not going to keep the car, you can hand it back without any further payments.
At the end of the contract term, typically three years, you can either:
- Return the car.
- Pay the resale value and keep it.
- Use the resale value towards buying a new car.
We provide several finance options including PCP. A simple three-minute application will let you know if you are eligible. Apply for PCP Car Finance now
