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What is PCP?

If you’re in the market for a new car, you’ve likely heard about an increasingly popular car finance option called PCP or Personal Contract Plan. But what is PCP and is it a suitable car finance option for you? 

PCP stands for personal contract plan and is a type of hire purchase. A PCP plan is made up of 3 stages.  

  1. Deposit: this is typically between 10% and 30% of the value of the car which you can pay in cash or cover with the value of a trade-in.

  2. Monthly Repayments: PCP’s generally have low monthly repayments compared with other forms of finance. Repayments are made over a fixed term, usually 3 years.

  3. End of Term Options: When the PCP contract term comes to an end, there are 3 options available to you. The first option is to make a final payment known as the GMFV (guaranteed minimum future value) to own the car. The second option is hand the car back. Generally there is no additional payment required with this option unless the terms and conditions of the contract have not been met. The final option available is to use the car as a deposit on a new car and enter into another PCP agreement.

Before entering into a PCP contract, it’s important that you’re fully aware of the terms and conditions involved. Many car dealers now market PCP as their primary method of finance and should be in a position to answer any questions you have, from the basic to the complex.

As with every car finance option, there are advantages and disadvantages.

Advantages of PCP:

  1. Low initial deposit required.

  2. You have the option of a brand new car when the PCP contract comes to an end.

  3. Low monthly repayments over the contract term.

Disadvantages of PCP:

  1. You won’t own the car unless the final GMFV payment is made at the end of the contract term.

  2. A charge will be incurred for excess mileage if the contract mileage is exceeded.

  3. There is a penalty fee if you decide to return the car before the PCP contract ends.

Still feeling a little confused as to which car finance option is best for you? Here’s our quick guide.

Choose PCP if…

  1. Low monthly repayments are important.

  2. You have concerns about the car depreciating in value.

  3. You’re not sure what you would like to do with the car at the end of the agreement.

Choose Hire Purchase if…

  1. You’re sure you’d like to keep the car at the end of the contract term.

  2. Fixed monthly repayments are important for budgeting purposes.

  3. You don’t want any restrictions on mileage, car care and servicing.

You can learn more about Hire Purchase from our “What is Hire Purchase?” article.


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