How it works:
You pay a deposit at the start of the agreement. Throughout the agreed term you pay a fixed monthly payment.
At the end of the agreement you are given three options;
Benefits:
Be aware of:
Mileage charges - if you exceed the amount agreed upon
Damage charges - only if you're handing the car back
Owning the car - You won't own it until you make the final payment
Options at the End of Your PCP
With this option, you can use the car until your contract ends and then at the end of the contract, you will have three options; You can either return the car, pay the lump sum (and keep it) or you can use the resale value and put it towards buying a another car. These are the only three options available to you at the end of a PCP contract, so you need to have decided what you’re going to do before the contract comes to a close.
Credit Check
You are likely going to be asked to pass a credit check before you will be accepted for a PCP contract. It’s important that you make sure you’ve worked out that you can afford this. You’ve got to be able to make these repayments every month, and keep in mind that this kind of contract can last up to four years. So, if you don’t think you’re going to be able to keep up with the payments, you might need to consider something else.
Deposit
With a PCP, you may need to pay a deposit, and most of the time, this is going to be 10% of the total cost of the vehicle. You will then use the car and make your payments for the duration of the contract. Ensure to keep within the contract regarding things like mileage, or you will be charged if you hand back the car. When the contract ends, if you have decided to keep the car, you’ll need to make a balloon payment, which is based on the guaranteed future value (gfv) and can be expensive. It is going to be more than your monthly payment, so try to make sure you’ve saved throughout the contract period for this.
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Handing the Car Back
If you don’t want to keep the car, then you can just give it back with no further payment subject to conditions. Or, pay off the gfv and then put down a deposit on another vehicle.
Contract Duration & Ending Early
One of the biggest advantages of this type of car finance is that you are only locked into this car for the duration of your contract. If you don’t like it, or you find another one that you like when the contract runs out, you are free to change cars. You can end your deal early if necessary, though, as long as you have paid half the total amount payable or more. If you haven’t, then you’re going to have to pay the difference. But, that means that if you don’t want to keep it up for any longer for any reason, you have the choice to get out.
How much you'll pay with PCP
However, one of the biggest disadvantages is that with PCP, you are likely to pay more than with any other type of car finance. As such, you’ve got to make sure you know how much you’re paying back, and figure out whether it’s going to be worth it. As well as this, you are going to face charges for things like being in excess of your agreed mileage, excessive wear, and tear, or any other damage such as scratches.