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PCP Finance Comparison


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What is PCP Finance?

PCP stands for Personal Contract Purchase. It’s a form of car finance that means you’ll loan the car from the finance company for a defined period. After that period, you’ll have the option to hand the car back, exchange the car, or purchase the car.

A typical PCP car finance deal will last anywhere between 18 to 48 months, though you’ll notice that 36 months tends to be the standard agreement length. The cost of your monthly payment will depend on how much deposit you put down, the length of your contract and how much interest is changed. A larger deposit will lower the monthly payments, while a longer contract will spread out the loan repayments making them cheaper. Interest rates (displayed as ‘APR’, meaning Annual Percentage Rate) also affect how much you pay per month, with the typical band between 4-8%. However, if you have bad credit or look at used car finance, interest can be as high as 20% because of the risk involved offering finance.
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How does PCP Finance work?

  1. You make a non-refundable deposit
  2. You agree to a loan amount that covers some of the remaining value of the car
  3. You agree to the loan repayment period (e.g. 36 months)
  4. At the end of that period, you have three options:
    1. Pay a final large payment (balloon payment) to own the car
    2. Return the car and take a fresh PCP agreement on a new car
    3. Return the car and walk away from the dealership
Here is real life example

Do I own the car?

No, the car finance company will own the car unless you pay the balloon payment at the end of the agreement. You effectively rent the car from the finance company, so you can’t claim to own the vehicle while you’re still making monthly payments. You don’t automatically own the car at the end of the agreement either, you need to pay the balloon payment to transfer ownership to you.

What’s the difference between PCP and HP?

While PCP and HP (Hire Purchase) car finance are similar agreements, the key difference is that at the end of an HP agreement you’ll own the car outright, whereas with a PCP agreement you’ll need to pay a balloon payment to transfer ownership.

Why choose PCP Finance?

The main benefit of PCP finance is that, because you’re only paying off the difference between the car’s worth at the start and end of the agreement, you don’t need to pay off the entire value of the car.
This means that the monthly payments are typically lower than other car financing options. Lower monthly payments mean that you’re more likely to be able to afford a higher-spec car.
The fact that you don’t automatically own the vehicle at the end of the contract also makes it easier to change the car for a brand new, upmarket car at the end of each PCP agreement.

How does PCP Finance compare to alternatives?

PCP HP (Hire Purchase) Personal Loan
Agreement Length 1-5 years 1-5 years 1-7 years
Deposit Required Yes* Yes* No
Car Owner Finance company with the option to purchase at contract end Finance company until a final purchase is made You – as long as the debt is repaid in full
Excess Mileage Charges Yes** Yes** No
Pay Monthly Yes Yes Yes

*A deposit is usually required, though you may be able to get a deposit contribution from the dealer or a lease deal that means you pay nothing upfront
**The annual mileage limit will usually be agreed upon at the start of the deal – once the limit is hit, you’ll pay to go above it when handing the car back to the dealer

Ready to find the car leasing option for you? Compare car leasing deals today at Moneyshake.

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