PCP can be a useful way to finance a family car if you want manageable monthly payments and expect your motoring needs to change over the next few years. However, it is not automatically the cheapest option, and it works best when the mileage allowance, final payment and overall cost suit the way your family actually uses a car.
That matters when children grow, pushchairs turn into sports kits and a perfectly adequate hatchback suddenly feels remarkably small.
If you are already wondering whether it is time to upgrade, these practical reasons to get a bigger family car are worth considering before deciding how to pay for one.
What Is PCP Finance?
Personal Contract Purchase, usually shortened to PCP, is a type of car finance.
You normally pay an initial deposit followed by fixed monthly payments over an agreed term. Part of the car’s value is deferred until the end of the agreement as an optional final payment, sometimes called a balloon payment or Guaranteed Minimum Future Value.
At the end, you generally have three choices:
- Return the car, subject to the agreement terms
- Pay the optional final payment and keep it
- Part-exchange it and potentially use any available equity towards another car
This flexibility is one reason PCP finance can appeal to families whose car requirements may look very different a few years from now.
Why Can PCP Suit a Growing Family?
Family cars have an annoying habit of shrinking without actually getting any smaller.
Add a baby seat, pushchair and changing bag and suddenly the boot has disappeared. A few years later it may be school bags, sports equipment, friends needing lifts and enough luggage for a family holiday to make the rear suspension nervous.
PCP can offer the flexibility to reassess the car at the end of the agreement rather than necessarily keeping the same vehicle long term.
That could suit a family moving from:
- A small hatchback to something with more boot space
- Five seats to seven
- A compact car to something more comfortable for longer journeys
- One type of fuel or powertrain to another as circumstances change
The important part is choosing a car for your real life, rather than simply choosing the biggest model your monthly budget will stretch to.
Lower Monthly Payments Do Not Mean a Cheaper Car
This is where PCP can become confusing.
Monthly repayments can be lower than with Hire Purchase because you are not paying off the full vehicle price through those monthly instalments. A sizeable amount is left until the end as the optional final payment.
That can make the monthly figure attractive, but it should not be the only number you look at.
Before signing anything, check:
- The deposit
- APR
- Monthly payment
- Agreement length
- Optional final payment
- Total amount payable
- Mileage allowance
- Excess mileage charges
- Rules covering condition and wear
It is the total cost, not simply the monthly payment, that tells you what the deal really costs.
The same principle applies to all motoring expenses. Our guide to cutting the cost of car ownership looks at insurance, servicing, tyres, fuel and finance costs together rather than treating the purchase price as the whole story.
Think Carefully About Family Mileage
Mileage is particularly important for families.
School runs do not look dramatic individually, but add clubs, commuting, weekend trips, grandparents and family holidays and those miles can accumulate surprisingly quickly.
A PCP agreement normally includes an agreed annual mileage allowance. If you return the car having exceeded it, additional charges may apply.
So do not deliberately choose an unrealistically low mileage allowance simply because it reduces the monthly quote.
Look back at what you have actually driven during the past year and consider whether your circumstances are likely to change.
If family road trips are becoming more frequent, build those miles into your calculations too.
Don’t Forget the Cost of Running a Bigger Car
Moving into a larger family car may solve the argument over who has to sit next to the luggage, but the monthly finance payment is only part of the cost.
Check what your shortlisted car is likely to cost for:
- Insurance
- Fuel or charging
- Vehicle tax where applicable
- Servicing
- Tyres
- Repairs
- Breakdown cover
Insurance can vary considerably between models, so getting a quote before committing to the car is sensible.
Our guide to car insurance and why you need it covers some of the costs and considerations worth factoring into your motoring budget.
PCP vs Hire Purchase, Leasing or a Personal Loan
PCP is only one option.
Hire Purchase (HP) usually involves higher monthly repayments because you are paying towards owning the car at the end of the agreement, without the same large optional final payment.
A personal loan may allow you to buy the car outright from the beginning, although the rate available depends on your circumstances.
Leasing or Personal Contract Hire (PCH) can suit people who want to use a newer vehicle for a set period without planning to own it.
There is no universal winner.
If you are also considering an EV, our guide to whether an electric car lease can work for families gives you another option to compare.
Questions to Ask Before Taking Out PCP
Before agreeing to anything, make sure you can answer these:
- Can we comfortably afford the payments if other household costs rise?
- Is the annual mileage realistic?
- How much is the optional final payment?
- What is the total amount payable over the agreement?
- What happens if we want to change the car early?
- What condition must the car be in when returned?
- Do we ultimately want to own the vehicle?
- Would HP, leasing, cash or a loan cost less overall?
If the salesperson cannot clearly explain the numbers, do not feel pressured to sign there and then.
A car is already an expensive family purchase, confusing finance does not improve it.
Is PCP Right for a Growing Family?
PCP can make sense for families who like changing cars every few years, want some flexibility at the end of the agreement and can comfortably work within the mileage and condition limits.
It may be less suitable if you cover very high mileage, want to own your car outright without facing a large final payment or are choosing PCP purely because the advertised monthly figure looks cheaper.
The best approach is to work out the size and type of car your family genuinely needs first, then compare the total cost of the different ways you could pay for it.
Growing children already manage to make almost everything more expensive, there is no need to let the car finance join in unnecessarily.
