A Guide to PCP Finance

PCP finance

PCP finance means that you as the borrower will be paying a part of the loan and not the lender. Yes this is an understandably confusing term you will need to get to grips with when you go for PCP finance for the purchase of your next automobile. You will find that the majority of banks and other financial institutions offer car finance. However it will be wise to shop around to ensure you receive the best deal available.

The way PCP finance works is by providing you with a guarantee that the total amount that you pay over the life of the loan will be less than the total of the payments you made at the end of the agreement. This sounds sensible really; and in fact it is. You would obviously prefer to pay less money over the longer of your loan. This can only be achieved if you choose a used car that goes on to enjoy low monthly repayments over its life. Therefore the key to finding the cheapest PCP auto loans is to search for a used car with low mileage.

There are two ways in which you can help yourself to save money on PCP finance: Firstly, if the salesperson does not tell you that there is a mileage limit before quoting you then you can find out yourself. Check the paperwork relating to the vehicle that you wish to purchase. Look for the mileage limit specified on the paperwork. If the salesperson has suggested a lump sum amount upon purchase then it would be prudent to find out what this figure is in advance of agreeing to purchase the vehicle.

Some lenders may also offer a lower monthly payments for longer than the agreed mileage limit. This is called an increased deposit. The interest rate on this type of loan will normally be higher but you will be saving money on the monthly repayments. Check that you understand exactly what the increased deposit is for and that you have accepted it before signing the agreement. When you get your PCP finance quotes you will be able to see if this type of arrangement has been offered to you and if so read the small print of the agreement very carefully.

A second option is to go for the guaranteed minimum future value (GME). This is where the future monthly repayments are based on the difference between the price of the car and the agreed quote. The benefit here is that the monthly repayments are lower than they would be with a standard PCP car loan. The downside of this option is that the customer is locked into a contract for the full term of the loan. If the quoted price is more than the current market price for the model you want then you have no choice but to accept the contract term.

You can use a personal contract purchase to consolidate all of your existing debts. This is another good reason to opt for a low interest loan as the repayment schedule means you are repaying a smaller amount each month. The main drawback is that the longer you take out the loan the more interest you will pay and the longer it will take you to clear the debt. Most PCP finance providers offer a debt consolidation loan on the same terms as the original loan. You should always compare these to get the best deal possible.

If you want a little bit of flexibility and a PCP finance option that involves paying a small amount every month then the best way to go is to go for a personal contract hire agreement. If you choose this arrangement then the repayments will be based on your current personal salary rather than your salary scale from your credit union. You do have the option to change the repayments to a larger amount each month by writing a letter to your PCP. You do have the option to pay back over a longer period of time by paying extra over the course of a month, say six months, or at the end of the contract period. Most PCP finance providers will agree to balloon payments so you can find out exactly what the total amount of money you will be repaying will be. This is the easiest way for a PCP finance agreement to work out the monthly repayment for you.

You can also get PCP hire purchase finance that works in the same way as the contract buy-out finance but allows you more control. In this arrangement the finance provider will look after paying the total monthly repayments during the term of the contract but will still contribute towards the total cost of the vehicle. You can choose to make a down payment towards the vehicle and the remainder of the monthly payments can be made using a cash deposit, received by you, or by applying for a loan from your chosen PCP. If you want flexibility with the vehicle and a lower monthly repayments then you can opt for a hire purchase agreement. This will allow you to pay a lower deposit towards the vehicle over a longer period of time or pay off the vehicle in full over a longer time frame.