If you’re looking to get a car on finance, you may be wondering which type of car finance agreement is best. In the UK, there are three main ways which tend to be the most popular. They are a personal loan option, hire purchase and PCP deals. In this post, we will look at is PCP the best way to finance a car.
PCP deals tend to be one of the most popular amongst drivers and its easy to see why as there are so many benefits to getting a car through PCP. The guide below looks at PCP in more detail and helps you decide whether it’s the right choice for you.
How does PCP work?
One of the main reasons why PCP car deals are so popular is due to their flexible structure. PCP allows the driver to benefit from low monthly payments and also the freedom to own the car or not.
When you apply for a PCP deal, you are agreeing to make monthly payments till the end of the agreed term.
Unlike, Hire Purchase you don’t spread the cost of your chosen cars value and instead cover the cost of depreciation. This helps to make the monthly payments much more affordable. PCP deals usually last between 3-5 years and once the deal has ended, you have three options.
- Once all payments have been made on time and in full, you can hand the car back to the dealer and as long as it is in good condition, there are no more payments to make.
- Alternatively, you can trade the car in and use any positive equity in the deal towards a newer car on PCP.
- If you want to keep the car, you can pay the large balloon payment at the end of the deal to keep driving the car you love.
Benefits of getting a car through Personal Contract Purchase:
There are so many advantages to getting a car through PCP, from lower monthly payments to fixed interest rates, it’s easy to see why drivers choose this type of car finance agreement.
- Lower monthly payments. Due to the structure of PCP, you can benefit from lower monthly payments t as the loan amount is lower. You also don’t need a hefty deposit to put down at the start of the deal as it can be deferred till the end of the contact or factored into the balloon payment.
- Low APR available. If you want to keep costs low, PCP can be the best way to do this. PCP deals can benefit from the lowest APR car finance payments and brand-new cars from the dealer could even come with 0% interest to pay! The lower your interest rate offered, the less you need to pay back overall.
- Get a newer, better car. Many drivers who choose PCP tend to hand their car back to the dealer at the end of the agreement and use to value towards another car on PCP. This means you can get into a cycle of getting a newer, better car every couple of years.
Who can get approved for PCP?
If you’re looking to get any form of finance, you will need to undergo a credit check first. Most lenders only perform a soft search credit check though which doesn’t harm your current credit score but it’s worth checking with the lender first.
Lenders use credit checks to see what kind of lender you have been in the past and if you can be trusted to pay back your loan on time and in full. A bad credit score usually indicates missed payments in the past, no credit history or high levels of debt.
It can be possible to get PCP with bad credit, but it can be more beneficial to improve your credit score fist to help acceptance rates and also get a lower interest.
What to consider before taking out a PCP deal:
With any form of finance, there are always factors that may not suit everyone and PCP is the same. We suggest considering the following factors before you commit to taking out a PCP car finance deal.
- Large balloon payment to pay. If you’re taking out car finance with the intention to own it at the end, PCP may not be the most cost effective. If you want to keep the car, you will need to pay the final balloon payment which can be thousands of pounds to pay. It can be hard to meet your finance repayments whilst also saving up to pay off the balloon payment.
- Additional charges for mileage and damage. When you take out a PCP deal, the dealer needs to set the future value of your car and they predict this amount by setting an agreed mileage at the start of the deal. If you exceed the agreed mileage or hand the car back to the dealer in a state that goes beyond general wear and tear, you can face additional fees to pay.
- Higher interest for bad credit. It’s true that you can still get a car on PCP with bad credit, but it can mean that you face higher interest rates. Lender usually use higher interest rates to help secure the deal and the risk associated with lending.
Final thoughts on financing a car with PHP
PCP may be the best way to finance a car for some consumers. However, it is important to do your research and understand all of the terms and conditions before signing a contract.
PCP contracts can be complex, and it is important to make sure you are getting the best deal for your individual situation.
You may want to read these posts next:
If you are looking at a larger car, check out our reasons to get a bigger car.
