What is PCP?

When you are looking to buy a new car, the number of choices can be overwhelming - especially when it comes to financing options.

PCP is one of the options that you may have heard of. But what is PCP finance and is it the right choice for you? Read on to find out more.

What is PCP?

PCP stands for personal contract purchase, and while this option can be attractive to drivers, it can be a complex deal which must be fully understood.

What happens with a PCP finance deal?

Similar to leasing a car or loaning a car, PCP is an option which gives you the opportunity to spread your vehicle payments over a number of months. You may wish to make payments for as long as three years, which is understandably easier than buying even a used car outright.

Most similar to hire purchase, PCP is still a unique option in its own right. When you choose your vehicle, you will make a deposit on it and then you will be contracted to make monthly payments until your term is completed.

Does PCP mean you own the car?

With hire purchase, you will typically own the vehicle at the end of your repayment term. However, this is not automatically the case with PCP - it is rather an optional extra. When your repayment term comes to a close, you can choose to make a large final payment (a balloon payment) and purchase the car. You will then own it.

What if you don’t make the balloon payment?

Many motorists who take advantage of PCP finance choose not to make the final balloon payment and do not buy the car outright. Instead of doing this, the car is assessed to see if it has maintained its value more highly than anticipated. If this is the case, the equity that you retain can be used as a deposit for a fresh PCP deal.

If neither of these options appeals to you, it is possible to simply give the car back and end your deal altogether.

Why choose PCP?

A PCP deal is a good choice as it comes with lower repayments every month than with a hire purchase - this is due to the balloon payment, as well as the lack of certainty of ownership. It is also easy to keep your PCP deal, roll it over and drive away with a new car after your term is finished.

What about the downsides?

There are some risks to PCP. For example, you will not automatically become the owner of the vehicle. You will also need to give the car back if you cannot make payments during the term of your agreement. There may also be some caps on the number of miles you can do annually, and breaching this term in your contract may come with a fine. You must also keep the car in the best possible condition, and repair it if damage occurs.

Are you interested in exploring PCP finance further, or want to look into other kinds of used cars finance Plymouth-based drivers favour? Then get in touch with Motor City Plymouth to find out more and discover how you could be driving a great car sooner than you might think.