What exactly is a ‘PCP'…and why it suits those on a lower budget

Unless the thought of buying a car just hasn’t featured on your radar at all over the last decade, there is a strong chance you will have heard of the phrase ‘PCP’. Or - being more specific - a Personal Contract Purchase.

Driven by a combination of low interest rates and a shift in consumer attitudes, PCP’s have overtaken traditional HP (Hire Purchase) deals as the most popular method of funding new and used car purchases in the UK.

Some sales statistics now go as far as proclaiming that more than 80% of new and used cars purchased in Britain are now funded via a PCP – a statistic unthinkable not too long ago!

So, what exactly is a PCP and why are they proving so popular?

Put simply, a PCP is like leasing a car for an agreed period with a pre-agreed mileage limit…but with the option to either hand the vehicle back or own it outright at the end.

Because the final (optional) portion of the finance repayment is deferred, a PCP means significantly lower monthly payments…and this is the big attraction to an ever-growing number of consumers.

If you think the lower monthly finance payments look too good to be true…think again.

The reduced payments arise because the customer is, in effect, only financing the depreciation of the vehicle (plus the cost of borrowing) over an agreed period, and not repaying the total value of the car (as per a traditional hire purchase deal).

This makes newer cars (often still under the manufacturer’s warranty) perfectly affordable for an increased amount of customers…and can, in some cases, enhance the chances of finance being approved for applicants with a chequered history.

Then, of course, by having the option to hand the car back at the end of the deal, PCP customers also avoid the hassle of having to sell an ageing used vehicle, or go through the rigmarole of haggling over a part-exchange price.

Whilst there are clearly many obvious attractions and advantages of financing a new or used car through a PCP deal, we at CarSupermarket-finance realise such a deal might not be right for everybody.

The final payment of a PCP deal is calculated by estimating the mileage you will drive over the term of your agreement - if you exceed the agreed mileage limits you will be charged for any excess miles driven. Drivers who do a lot of miles per year (20,000+) would not be advised to take out PCP finance.

But, for more information on PCP’s, or to discuss a possible deal on any of our vehicles, please do not hesitate to speak with one of our customer advisors.