Personal Contract Purchase: The PCP explained

Car finance advice
Car finance, PCP, personal contract purchase, car dealer

Are you looking for the best guide on the internet to personal contract purchase (PCP) car finance and how it works? Are you unsure about the jargon car dealers use? And what are the real implications for your finances?

Well, we’ve comprehensively overhauled The Car Expert’s guide to how a personal contract purchase works.

This article has been the most popular piece at The Car Expert for the last three years. So we decided it was about time to give our guide to “What is PCP car finance?” a thorough overhaul and update.

This guide will help you understand everything there is to know. But if there’s anything you’re not sure of by the end, ask us a question in the comments below.


The PCP (personal contract purchase or personal contract plan) is the most popular car finance product on the UK market for both new and used cars. Most car manufacturers and car dealerships push PCPs pretty hard. But what is PCP car finance? How does it work and what should you be looking out for? 

The Car Expert has previously looked at different types of car finance available. But it’s clear that many thousands of people are unsure how a PCP really works, despite the number of people who use a PCP to buy a car.

Discussing car finance, like a hire purchase or PCP, in a car showroom

In fact, research from 2015 suggested that a staggering 88% of men and 75% of women surveyed could not explain what a PCP was. The good news is that if you fall into that category, you’re certainly not alone!

If you want to brush up on your car finance jargon, we’ve produced this most excellent glossary:

At most dealerships, PCP car finance is usually offered by the manufacturer’s own finance company. The offers tend to be much better on new cars than on used cars. That’s because car manufacturers are far more interested in selling you a new car than one they built a few years ago.

There are other lenders who also offer PCPs, but they are not normally competitive with manufacturer finance on new cars.

What is a Personal Contract Purchase?

A PCP is a form of car finance based on a Hire Purchase (HP) agreement. It’s often incorrectly referred to as a personal contract plan (rather than purchase).

In a traditional hire purchase agreement, you pay off the entire value of the car in equal monthly instalments. A PCP differs in that you have lower monthly instalments that only cover the car’s depreciation, and then a very large final payment at the end.

This final payment is often known as the balloon (also known as the Guaranteed Future Value, but that’s actually a slightly different thing). You have several options as to how to deal with this final amount, depending on whether you want to keep your car or change it.

In comparing a PCP and HP, you are usually borrowing the same amount of money and paying a similar amount of interest (usually slightly more on a PCP). The fees for both finance products are usually about the same as well.

What is the attraction of a PCP?

If you compare financing the same car on a PCP against an HP, the big difference is that you are paying off a much smaller amount of your debt via your monthly repayments. This means:

  • Your monthly payments will be much lower, and/or
  • Your initial deposit will be much lower, and/or
  • Your repayment term will be shorter

Most people tend to change their cars about every three years. Most buyers also have a reasonably small deposit to put down. For this sort of situation, a PCP gives you a much lower monthly payment than an HP. However, there is a large caveat – at the end of the agreement, you have to take action of some sort to settle the outstanding debt (the balloon). If you don’t, you will be stung hard.

This means that on a PCP, the same car costs considerably less per month to finance than on an HP. Alternatively, you can buy a more expensive car for the same monthly payment. This is what makes a PCP so attractive to car buyers.

For a car dealer or car manufacturer, a PCP has two main benefits:

  1. Lower monthly payments on a PCP mean more customers can afford more of their cars
  2. Customers can’t usually afford to pay off the balloon amount, so they are effectively forced to buy another car on another PCP. As a result, the dealer/manufacturer has a good opportunity of securing repeat business.

Next page: Breaking down the PCP

Stuart Masson
Stuart is the Editor of The Car Expert, which he founded in 2011, and our new sister site The Van Expert. Originally from Australia, Stuart has had a passion for cars and the car industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.

433 Comments

  1. Hi just reading your interesting article on PCP. I am buying a new car now and can pay cash for it, I have already had a £1000 contribution from the manufacturer. The dealer is suggesting taking out PCP This entitles me to another £1000 contribution from the Finance house who claim it back from the manufacturer then after one or two months of payments to ask for a settlement figure thus picking up £2000 off my car minus the payments. I am assured this is quite above board but am still sceptical. Mainly because the GFV they state at the beginning is based as you know on my estimated mileage 6000 miles and the term of 24 months. Would this be possible to do in your estimation? I would welcome your views. Kind Regards Noel

  2. stuart

    Hi Noel. We have recently covered this in our forum (click here), so check that out. In short, yes you should be able to do this. You can settle the finance at any time during the agreement, but the guaranteed value only applies at the end of the term.

    If you cancel within 14 days, you should be able to avoid paying any interest or fees. If you cancel after a couple of months, your settlement fee could be considerably higher as your interest payments and fees will be added.

  3. Can I sell my car that is on a PCP agreement to another company and they pay the settlement figure. So that I may buy one of their cars. One of the downsides is you can end up ;coked into a brand and the dealer turns out to be difficult

  4. stuart

    Hi Paul. By “another company”, I assume you mean another dealership? You certainly can, if the value exceeds the settlement figure, and you use the equity for your next car.

    If the value is less than the settlement figure (but you have met all your contract conditions), then you can usually just call your finance company and they will come and collect it.

  5. Thanks, thats what I thought. Well I guess Toyota will not miss one loyal customer then!

  6. Hello. I am in the same situation as Noel above and thankyou for the guidance. Can you tell me though, who would be the registered owner of the car? Is it the finance house or the car buyer?
    Regards
    Geoffrey

  7. stuart

    Hi Geoffrey. The UK is complicated, in that the finance company is the registered owner but you are the registered keeper on a PCP. On a lease, the finance company is both the owner and the keeper. Once you settle the finance, you become the registered owner. However, most of the time there is no real paperwork to explain this, and in real-world terms it means that the keeper can sell the car as long as they settle the finance outstanding.

  8. Great article. I currently have a PCP plan and have 17 months left out of a 3 year agreement with the balloon figure on the end. Struggling to keep the payments due to a change in circumstances. Can I give the car up and get out of the agreement?

    Ben

  9. stuart

    Depending on the nature of your change in circumstances, the best bet is usually to contact the finance company ASAP and discuss it with them. PCPs do have termination rights which you may be eligible for, or it may be that your car is worth more than its settlement figure. Or you may have to pay some money to clear the settlement figure.

  10. Really Helpful article, I have two years left on my PCP Plan, due to excessive travel due to work, I am currently over my agreed mileage by 8000. If I continue with this excess mileage and purchase the vehicle, will I still be charged for going over the agreed mileage plan ?

  11. stuart

    Hi Graham. Short answer = no, you will not be charged.
    The settlement/balloon/GMFV figure set at the beginning of the agreement is the amount you owe to purchase the vehicle outright at the end of the agreement. If that is your plan, then the mileage is irrelevant, as is the vehicle’s condition or servicing history. It only matters if you are asking the finance company to take the car back.
    If you do not want to keep the car, you can probably contact the finance company and ask them to recalculate your remaining payments based on your increased mileage. They should be able to adjust the GMFV and increase your payments to cover the increased depreciation. If so, check to see if there are any charges for doing this.

  12. i am looking to use PCP to finance the purchase of a car. I have done my research and reduced it down to 2 models from the same range of cars. The cheaper car with a manufacture contribution works out to the same monthly repayments as the more expensive car. The final balloon amount for the cheaper car is thousands of pounds less than the more expensive car, making the amount financed greater. Is it financially better to go for the more expensive vehicle or go with the cheaper car? I may what to purchase the car at the end of the agreement-cheers

  13. I’ve had my car 7 months and want to upgrade. It was over 3yrs. Can I upgrade

  14. stuart

    Hi Steven. It depends on whether you really are going to purchase the car at the end. If the monthly payments and initial deposit are the same, then the more expensive car is the better choice (ie – you are getting more car for your money). However, if you are going to pay out the settlement at the end and keep the car, then the cheaper car is thousands of pounds better. Many people say that they plan to buy the car out at the end of the agreement but never do, as they don’t have the money at the time.

  15. stuart

    Hi Sharn. Yes you can, but it will probably cost you quite a bit of money. I am working on an article about settling a PCP early, which should be live tomorrow. Check back for more info then!

  16. Hi Stuart,
    Very clear and concise article thank you.
    My last financed car was a 2006 V8 Vantage which I put 33% deposit down on a HP agreement.
    Having sold the vehicle I am now interested in a 2007 R8 but trying to stick to monthly budget the same or lower than my HP payment was for the Aston.
    I'm very likely to change cars in 3 years and PCP sounds right for me.
    I have been looking at R8s upto around £40k but some are Cat D repairs from dealerships (hence lower prices).
    Is it true that most finance companies will not PCP finance a cat d repaired car or a car over a 3 years old?

    Thank you in advance

    Steve

  17. stuart

    Hi Steve. Each finance company will have its own policies on things like Category D repairs and vehicle age. With Audi Finance, the age requirement is (well, it used to be, don’t know if it has changed) that the car had to be no more than 6 years old at the end of a PCP agreement (and about 70,000 miles from memory). So you could possibly take a 4-year-old Audi on a 2-year PCP. I don’t know if they will finance a Cat D car, though. Usually, Audi dealers won’t carry Cat D or Cat C stock so it’s not normally an issue.

  18. stuart

    Hi Alan. There is no right or wrong; whichever suits your circumstances better. The car’s starting price and final value are the same either way, so you can either pay more up front and less each month, or less now and more each month. The more money you have under finance, the more interest you will pay in total.
    The dealer will always want you to finance more money, as they get paid a commission on the total amount financed by the finance company.

  19. What I the best pay a large deposit or keep some of the deposit as advised by the salesman

  20. I would like some advice regarding PCP. I currently have a Nissan Qashqai on PCP since 2012. The car is currently at the dealership with a problem with the DPF system. It has had one attempt of regeneration under its warranty which failed. We have now been told it will cost £1500 to repair the system. The car did not have the DPF warning light installed so we were unaware of the problem and knowledge on how to rectify it. Does the finance company have any repsonsibility on the cost of repairs for the car? As we are only hiring it as such. We have made a complaints case against Nissan with their customer services. We no longer want the car as it will not suit us with the driving conditions we do. Where do we stand on handing car back? As we owe half the cost on the car which is £10,000.

    Any advice would be great

  21. stuart

    Hi Christine. If your DPF system has clogged and failed with no warning lights, then it is probably an issue with the car that should have been recognised when it was handled under warranty the first time. Is the car still under warranty now? My guess is no, since they are now asking you for £1500.
    A DPF system should give you two warnings as the filter fills up (click here for more info). This should also have been explained to you by the dealer when selling the car. Try again with Nissan UK’s head office to see if they can/will assist.
    A PCP is more than just hiring a car – it’s more like an interest-only mortgage. You have the logbook, not the finance company. A lease (or contract hire) is simply hiring the car. Having had the car for two years, you can’t give it back under the Sale of Goods Act, but you can sell the car and settle the PCP agreement (click here). If you have paid off more than 50% of the total amount owed (which is different to 50% of the amount borrowed) then you should be able to give the car back to the finance company using your voluntary termination rights.

  22. Thanks for your reply. The car is still under warranty but the warranty only covers regeneration which they have done but it didnt make a difference. It was just the EML that came on, then went off then came back on a few days later.
    There was no mention of DPF when we were buying the car, if they had said then we would have gone for a petrol version or a different make of car.

    We are hoping for a phone call today from head office to see if they will assist. Its our last hope as we do not have that sort of money to be handing over. We would have had the car two years this august, not sure if this makes a difference to the Sale Of Good Act?

  23. Hi Stuart,

    I am looking to get my first car. I have seen a Vauxhall Corsa 1.0i Excite 3dr

    35 Monthly Payments of £169
    Customer Deposit: £169
    Vauxhall Deposit Contribution: £1,903
    Term of Agreement: 36 Months
    Option to Purchase Payment: £3,800
    On The Road Cash Price: £11,787.35
    Total Amount of Credit: £9,715.35
    Total Amount Payable: £11,787.35
    Rate of Interest (Fixed) 0%
    Representative 0.0% APR

    It comes with 1 years free insurance and a Lifetime Warranty too.

    Paying for the car, is all i’m doing is paying the deposit and then the monthly payments?

    Also at the end of the term, can i just give back the car to the dealership and pay nothing extra?
    Unless i’ve breached the terms of the contract that was agreed with the sales advisor.

    Obviously i’ll be paying the insurance for the final 2 years and 3 years road tax.

    Thanks,
    Michael

  24. stuart

    You have had the car and full use of it for two years, and it fundamentally won’t be in the same condition it was when you bought it, so the Sale of Goods Act won’t apply for you to be able to give the car as being ‘not fit for purpose’. I’m not sure why Nissan won’t replace the DPF or any other systems if they have failed while the car is under warranty – if no warnings have come up, then as a driver you have no clue that the DPF is full.

  25. stuart

    Hi Michael. Yes, assuming you have met all of the criteria (mileage, servicing, condition), you can simply give the car back to Vauxhall Finance at the end of the agreement. You will need to make sure that you follow their processes for giving it back, and communicate your intention to do so well before the end of the agreement. Make sure you keep your car in good condition, as they will be able to bill you (at whatever rate they choose) for any repair work – and they will be super-fussy about scratches, chips, kerbed wheels and so on.

  26. Its been a fight really between the dealership and us. Anyway the outcome is customer services are paying 50% of the cost of the part, leaving us with a bill of £1,000 left to pay. Dealership wont pay unless we decide to do a part exchange for another car. They will give us £11,000 which will pay off the rest of the pcp & pay for the rest of the repair and give us £500 on another car. We have to take that offer as we have no other choice.
    Thanks for your advice and help

  27. stuart

    Check the part-exchange price on another car from another dealership, as you may get a better deal elsewhere which more than covers the cost of the repair. Plenty of deals to be had out there!

  28. We brought a brand new car in july last year, on finance on a agreement I thought was HP and I now discover is PCP. We are 11 mths into agreement & the car had sat at dealership for over 6 wks awaiting parts for a technical issue (we have been given a courtesy car). We are wanting to get out of the PCP is this possible? – we put down a £10k deposit, on a £36k car, on a 48 mth deal. It was not by the way explained to me about the final repayment etc & am actually a)feeling silly for not seeing it before b) cross at dealership for not full explaining it all to me (a large nationwide dealer) What would be are best option? Thanks

  29. stuart

    Hi Mary. Yes, the dealer should be explaining everything fully when they are selling you a finance agreement, but you also have to take responsibility for reading a contract before you sign it. Some basic maths would show that after 48 months of payments and your deposit, you are still well short of paying for the whole car (plus interest). You can settle the PCP early, but that is not really going to help you. Your best bet is to ride out the last three years, save up a deposit for your next car over the next three years and take an HP on your next agreement.

  30. Thanks for the reply. Would it be worth waiting another year & looking into voluntary termination? Part of reason for wanting to get out of the HP/PCP is we are going to be buying a new house (not anticipated last year) & want this off!! Cheers

  31. stuart

    Yes, you can voluntarily terminate the agreement once you have repaid 50% of the total amount owed (which is not the same as the total amount financed, as you need to include interest and fees). However, the finance company will probably not want to finance you on another car if you do this, so you will have to look elsewhere for your next car. I am going to do an article on voluntary termination in coming weeks, so keep an eye out for that – it’s not always as easy or attractive as it sounds.

  32. Ok thanks, it does sound kind of easy, but reading a little more seems to effect credit etc Husband thinks we should just bite bullet & keep slogging away at it. Think this may well be a case of lesson learnt & not be wanting repeat situation. Out of curiosity, after 4 yrs and you either pay outstanding balance or return car, if it’s worth more (which seems to be general idea) what happens to the excess balance? I know the dealership likes to encourage you to use it as deposit on next car, but if you don’t what is the “deal” thanks

  33. Hi there, i need some advice please. I have taken out HP on my car and have only paid 5 months off. (Its a 5 year loan) i have decided i want to change my car for a more expensive one with the same dealer. Is that possible?

  34. stuart

    Hi Paul. You will need to settle your current Hire Purchase and start again. This is basically the same process as settling a PCP early. Be aware that as you are very early into a 60-month agreement, it is quite likely that your finance settlement will be considerably higher than your car’s value, so you may have to pay quite a bit of money to settle your current car before worrying about another one. Check our guide for what to consider before taking car finance to make sure you’re not going to run into the same issue again.

  35. stuart

    Voluntarily terminating your PCP should not affect your credit score/credit rating, as it is a clause built into every HP and PCP agreement by law and you are acting entirely within your agreement. The finance company won’t like it, as it means they don’t get the remaining payments from you and they inherit a car which is probably worth less than your outstanding settlement. They will probably decline to finance you again, as you have just told them that you can’t be relied upon to repay your borrowing, but it may not affect other companies offering you finance (although it will be noted on your credit report, so they will see it).
    Don’t assume your car will be worth more than the settlement after 4 years. The whole principle is that it should be about even with the settlement, and if there is any equity then it is likely to be quite small. You are not obliged to use it to buy another car so you can keep the difference. However, a dealer will usually only take your car on part-exchange and settle your finance if you are buying another car, so you may have to sell it privately to achieve this.

  36. Hi Stuart

    With a PCP I presume you just lose your deposit when you hand the car back ?

  37. stuart

    Hi Carl. Yes, the term ‘deposit’ is a bit of a misnomer. It is really an up-front payment, followed by your monthly payments.

  38. Hi Stuart

    We are 12 mths into a PCP agreement & thinking of changing cars, likely to one of a lower value, worth while or hold off for a while longer? Our other thought was to make a overpayment, not likely to be huge but maybe a couple of thousand, is it that is something worth doing if you can? Thank you

  39. stuart

    Hi Mary. You can settle your PCP early, but it will be a question of how much it is going to cost you to do that. The linked article has more detail about it. Paying an overpayment will lower your remaining monthly payments, but won’t change the end date or the balloon value at the end of the agreement. If it suits your needs to do that then fine, but most people don’t find it that beneficial.

  40. I thought if you settled up a large part or all the payments in one go for example (not including balloon) of PCP it may alter the amount of interest, as in effect you aren’t having the finance for as long, even if the agreement end date is the same oray alter t&cs of agreement, you could maybe exchange early if wanted etc?! Or does principle stay the same. The thought behind it is whether we use some savings to alter PCP buy paying a large portion off or possibly buy a cheaper car (cash) for the errands/school run etc as current car is not so economical for this (& the mileage clause is something I have in my mind) & use the “good” car for weekends, which sounds little uneconomical to pay for a car you are not using to full potential but still paying a lot for (if that makes sense?)

  41. stuart

    Yes, you are correct. If you settle your finance agreement early, you will save the interest owing on the remaining period of the loan. However, most finance companies will charge you a fee to settle early, so that will take a bite out of your interest savings. If you are making an overpayment, they may or may not charge you a fee so best to check.
    If your plan is to change the car early, then you can either make an overpayment now to reduce the settlement figure in a few months’ time, or settle it all now and have a larger settlement figure. It’s not going to make a massive difference – you either pay more now or pay more later.

  42. Hi Stuart,

    I’m coming to the end of a 3 year PCP. I think the agreement should finish at the end of August. Should I have heard something from the finance company (Santander) or the dealer (Mazda) about my options by now? I want to exchange for a new car but with a different dealer. Should I go straight to the new dealer?

  43. stuart

    Hi Andrea. It is surprising that you haven't heard anything from the finance company, and unusual that the dealer hasn't bothered calling to try and lure you into a new car. You are most welcome to go to any dealer you like to purchase a new car. That dealer will settle your finance (you will need to provide a settlement letter from Santander) as part of the part-exchange process.

  44. hi , great article, I just wanted to know the realistic options and consequences if for example you were to lose your job whilst within the first year of a pcp deal, can you hand the car back but pay some penalty, I take credit score would be effected, but what are the actual options available ? thanks

  45. stuart

    Hi Stewart. The best bet is to contact the finance company straight away and talk it through with them. You can settle the PCP early and sell the car, but the ‘penalty’ is that you will almost certainly have a shortfall to cover thanks to your car’s depreciation. Your credit score is only likely to be significantly affected if you start missing payments and default on the loan.

  46. Thanks for your reply. Could Santander just take the final balloon payment without contacting me first?

  47. stuart

    Quite possibly, yes. Your agreement with the bank is for an initial payment of £X, however many monthly payments of £Y and a final balloon payment of £Z. If you wish to hand the car back rather than paying the balloon, it is your responsibility to notify them oF this. If you are going to part-exchange the car on another vehicle, you will need to give the dealer your settlement figure from Santander and they will settle the balance for you. This needs to be done before your balloon payment is due. If you do not notify Santander, they could assume that you intend to keep the car and so take the final payment. Usually the finance company will try to notify you in advance, as most people don’t have that sort of money in their bank account and they don’t want to put you into default unnecessarily, so I’m surprised that they haven’t written to you.

  48. Hi! Just some quick advise please on PCP contracts. I have already taken out one PCP agreement for my son – can I take out another for my daughter too or are you only allowed to take out one agreement under one name? It will be through 2 different dealerships. Also is it difficult to get a PCP contract if you credit rating is average? Any help/advise greatly appreciated.

  49. Great article. A quick question I am coming to the end of a 3 year PCP deal in 2 months. The car is worth less than the GFV. I will have gone over the agreed mileage by around 11k! The GFV is £16,200. I would quite like to buy the car at the end. Is there anyway to negotiate the £16,200 figure down or is this fixed?

  50. stuart

    Hi Hitman. The figure is fixed, as it is simply the amount of the loan that is unpaid and needs to be settled. You can certainly try to make the finance company an offer, but I have never heard of it working before!

  51. stuart

    Hi Emma. Have a look at this article about taking out a PCP for someone else. In short, you’re not allowed to do it, so you’re probably lucky that it worked the first time around. It doesn’t matter if it’s the same dealership or not, as all the finance companies have access to the same credit information about you, which is your Experian report or similar.

  52. Hi Stuart, really interesting article. I've wanted a Qashqai for years so would like to take a new PCP out. I have a car which is 14 months into a 36 month agreement. I have £2k in equity on my existing car after settlement and I would like to take a new PCP at 6,000 mile per year over 48 months to keep the monthly payments down, knowing that I'll do over 14,000 miles per year. I'm very unlikely to hand the car back so does the 6,000 mile per year matter apart from making a nonsense of the GFV? Thank you.

  53. stuart

    Hi tmrinaldi. Bear in mind that if you are planning to pay the car out and keep it, you have to have the funds in place to be able to settle the PCP at the end of the term. If you are going to take out a 48-month PCP with the intention of keeping the car, you might also look at other options like a 5-year HP so there is no balloon to pay at the end of it.
    Intending to run massively over the agreed mileage is a risky strategy. What you are doing is intentionally keeping the GMFV higher than you expect in order to keep your monthly payments low, and banking on having the funds in place in 4 years’ time to settle up. If anything changes during the next 4 years and you suddenly need to settle your PCP early, you will have put yourself into a severe negative equity position. Also, if the finance company finds out that you have knowingly underestimated your mileage, they may decline to finance you or take action against you as it is basically an act of fraud (you are knowingly devaluing the asset by far more than the stated amount).

  54. I bought a car on finance but am three month in and can’t afford to keep paying is there any way I can swap it and get another cheaper car with lower payments ??

  55. stuart

    Hi Scott. Sorry to hear about your situation. Have a read here about settling your finance early. It will be difficult to swap to a cheaper car in the short term, as your car is probably worth a lot less than the amount owing due to its depreciation and the interest on the borrowing.

  56. I have had my BMW 1 for 9 months now . I took out a pcp of 36 months. But I’m getting bored with the car, is it possible for me to change it now or do I need to keep it for 3 yrs ? Also can I go to any dealer to do this

  57. stuart

    Hi Darren. Have a read of this article all about settling your PCP early.

  58. What recognised guidelines cover the condition of repair / disrepair at the end of the term if I hand back to dealer. The contract with the finance company uses fairly subjective terminology. There are a couple of parking scrapes but the milage is significantly lower than originally agreed ( almost half) so I would expect one to offset the other and me to walk away with no charges?

  59. stuart

    Hi John. Unfortunately no, it doesn’t work that way and the contract is always set out in the finance company’s favour. Your agreement allows for a maximum mileage, but there is no provision for your mileage being less. They are also allowed to charge you for the parking scrapes if they are considered damage rather than normal wear and tear (which they almost certainly will be). You can try and negotiate with them, but it almost certainly won’t work.

  60. How does the 50% rule work on giving the car back?

  61. stuart

    Hi Howard. We have an article all about it, and it is called voluntary termination. Have a read!

  62. Hi Stuart

    First and foremost, thank you for all the amazing advice you provide. I see lots of people asking, but very few thanking all te effort you put in responding back.

    If I may, I have a question too.

    I am about to start a new job where I have a 7.8k car allowance a year. The car I want, has a price around 30k. We have savings to fund up to 10k deposit if required.

    I could get the car as a company car (insured, serviced, etc) which is one option (im a high rate tax payer, base salary 85k) or get into a HP or PCP.

    I fully intend to change the car after 3 years for a newer one.

    I currently drive a company car and find it quite comfortable, i dont have the hassle of worrying about it, nor the net salary ht is noticeable.

    Would you say getting into a PCP be the best of all three options?

  63. stuart

    Hi Sudtai, thank you for your kind words. Bear in mind that any savings you put in up front will be gone, so you may prefer to spend less up front and pay more per month. If you are going to be using the car for business purposes, then you may find that contract hire (lease) is a better option – especially if you can claim any of the VAT. If it is simply personal use and commuting, then often a PCP works out to be a better bet. At the end of your 3 year period, it may be worth more than the settlement value which gives you a bit of equity towards your next car. If you manage your own servicing and insurance, you can often save money over paying for this to be managed for you as part of a company car package.
    If you have a regular accountant, I’d speak to them, as they will know your tax affairs and may recommend a particular path that is best for you.

  64. Hi Stuart

    I am almost at the end of my PCP deal and won’t be able to keep my car. Is there ever a situation whereby the car is actually worth more than the GFV and therefore you receive equity back, or do you simply give the car back?
    Thank you.

  65. stuart

    Hi Lolalou. You can possibly sell your car privately, and if you make more than your GMFV then you can keep the difference. Talk to your finance company first, as they may have terms and conditions if you want to sell the car (eg – they may insist that the buyer pays them directly, rather than paying you and you paying them).

    If you are returning the car to the finance company, then you do not benefit if the car is worth more than the GMFV – you just give it back.

  66. Thank you, I appreciate your help.

  67. Hi stuart i have a car on pcp but im forced into bankcrupcy can they take my car off me? I can still make the payments??
    Regards sam

  68. Hi. Due to change in circumstances I will go over my contracted milage and be charged 9p a mile! The company wont adjust my contract what do I do as I could end up owing thousands

  69. HI Stuart is there a maximum payment i can make with Audi PCP? And is there a minimum i can take it down to per month to make sure i don’t get hit with interest

    I.e. could i pay say £20k on month 2 which would take the payment down to £20 a month or so or are there any restrictions?

    I heard you could only do £3K over the phone at once but thought you might be able to do a BACS transfer for the rest?

  70. stuart

    Hi Sam. If you are still making payments then there should be no problem. Once you have repaid more than 1/3 of the total payable, they can’t automatically take your car off you anyway, and have to get a court order to do so. If you find that you are struggling with the payments, then contact the finance company immediately to try and work something out rather than missing payments and forcing them to take action against you.

  71. stuart

    Hi Vicky. I’m surprised that they won’t adjust your milage allowance, as it’s usually in their best interests as well as yours. Are you financed on a PCP through a manufacturer finance company, or through an independent finance company/bank? Also, if you are on a lease rather than a PCP, the finance company may well refuse to adjust your mileage.

  72. stuart

    Hi Steven. There is a maximum deposit you can pay on a PCP up front, and it depends on the car’s GMFV, the term length and how much you are borrowing. An Audi dealer will be able to give you a precise maximum for the car you are considering. Most finance companies have a minimum monthly payment of about £50/month, but it varies.
    If you are making an overpayment, there will be a limit as to how much can be taken over the phone (and £3K seems about right, although some may be lower). The finance company will probably insist on an electronic transfer for anything more.
    You are probably better setting up the PCP to suit you best before you start, rather than trying to adjust it on the fly. Additional overpayments or mileage changes are best for changes in circumstance to allow you to maintain some control over your finances, rather than trying to minimise interest once the agreement has been started. The finance company will always get their money from you, so there’s little point trying to game the system.

  73. Hi Stuart, thanks for your speedy reply.

    Yes 50% is the deposit max in this case. I had hoped to bring the min payment down to £20 or so per month as to not pay much interest, being a bank holiday at the moment they cant tell but was hoping it would be less than £50 a month. Thanks will look at the electronic payment option but want to do it as soon as the next payment option is available so i can get rid of the interest. Yes have taken the final payment down to as low as it will go £1K or so as. I didn’t think there was any mileage charges if im looking to own the car and pay for it pretty much outright early on and the small balloon payment at the end to make it easy when the time comes.

    I get what you mean on the finance company element but if i pay nearly the whole car off in month 2 payment wise (by using a 0% interest credit card for some of it) and only have a minimum payment per month then surely that means the interest will reduce from say in total over 4 years from £3400 to around £500 as i am paying it straight away therefore getting access to the deposit contribution they give me?

    Thanks

  74. Hi stuart thanks for that info… but ive only been paying for 6 months and its for 3 years i put a £5500 deposit down as thats wot i got for my old car.. wasnt sure if they could take it because ive put a large deposit down…i can keep up with the £160 a month payments thats no problem.. thanks regards sam

  75. Hi, we have a car on PCP and are about to service it, the dealership wants double the cost of a first service at any other garage (I.e Halfords or kwikfit), am I breaching my agreement by going out with the dealership? Thanks

  76. I have a personal contract hire agreement and only had the car for 8 weeks and it is being investigated for a fault which they cannot replicate at the moment, however i lost all faith in the vehicle now so wish to cancel the agreement – do you know if i am able to do this with no charge given that i have had the car for such little time?

  77. stuart

    You can settle the outstanding finance at any time, which will save you all of your outstanding interest and of course you still benefit from the deposit contribution. Obviously the sooner you do this, the more you save. Even if you cancel the finance agreement within 14 days of it being activated, you will still get the deposit contribution.

  78. stuart

    Hi Fiona. You will need to check your contract with the finance company about this. Many manufacturer finance companies do insist that the car is serviced by an Approved Service Centre (ie – a dealership). This is because the GMFV at the end of the agreement is based on a full manufacturer service history – if you have had the car serviced by the dealer, it is worth more than if it has been serviced by KwikFit. If you don’t intend to claim the GMFV at the end of the agreement, then it doesn’t matter, but basically you are best served by having it serviced by the dealer. If you fail to have the car serviced by the dealer, the finance company can penalise you for hundreds or even thousands of pounds when you give the car back.
    Warranty-wise, it is a different story. You are not required to have the car serviced by the dealer.

  79. Thanks Stuart, i found out today that the minimum payment is £50 a month so they have said that has to stay there, you can reduce the length of the agreement but that monthly payment has to remain there? I was also told that i had to leave a balloon payment which is at its lowest of £1k ish – with all that in mind it suggests on this Audi PCP agreement i need to keep this going and cant pay it off early?

    Wouldn’t want to cancel after 14 days as doing it through a friend.

  80. stuart

    Hi Imogen. Unfortunately the law is fairly unclear with regard to this. To be able to walk away from the car and your finance agreement, you have to show that the car is not fit for purpose, which is almost impossible. If you want to fight the manufacturer to replace the car with another one, you might have more luck. It will depend on what sort of fault you are talking about, and whether they can repair it properly. Cars develop faults, this is a normal thing. To say that you have lost all faith in the vehicle would mean it would have to be a pretty major fault which can’t be fixed.

  81. stuart

    Cancelling within 14 days makes no difference to credit ratings or anything else – it’s your legislative right. However, if you are “doing it through a friend” then you are already courting trouble with Audi Finance, as this is an Accommodation Deal and they would not have allowed it if they had known about it. If they find out about it, then both you and your friend will be hearing from Audi Finance and they won’t be happy.

  82. Apologies for the confusion when i said through a friend i meant my friend works there and im not doing it through them in that they are the sales person, it is my finance agreement i just meant they are my sales contact if you like so i didn’t want to cause them any problems by cancelling after 14 days. Thanks

  83. Hi. Just reading about PCP and found your blog. Very interesting! I have just recently signed up for a PCP loan and looking over the figures, it seems I am paying a horrific amount of interest on the loan even though it advertises it at just under 15% APR. I had a £4000 deposit on a £12000 car over 3 years with a GFMV of £5000. would I be correct in thinking that I should only be paying interest on the difference (ie £3000 which I am borrowing), or have I got that completely wrong? The interest coincidentally is being quoted at over £2600. Kind Regards. Bill

  84. stuart

    Hi Bill. You are paying interest on the whole borrowing (£8,000). However, instead of paying off the last £5,000 you simply give the car back. 15% APR is not unusual on a used car when you are only borrowing a relatively small amount over three years (basically you are paying £866/year in interest & fees to borrow £8,000). If you were borrowing more money over a longer term (say £20K over 4 years), your APR would be less but the total amount of interest you pay will be higher.

  85. Hi,

    I want to buy a car worth 15000. The GFV is about 6500. If I pay a deposit of 3000 and take a loan of 5500. If in future I pay off the 5500. Can I pay off the 6500 at the end of term. Do I still need to pay the interest on the 6500.

  86. Hi Stuart,

    I have a brand new Toyota Yaris on finance, I put down £3300 as a deposit and am paying monthly instalments for 3 years and at the end of it I can purchase it for another £5000 (total car being about £15,000). However I wont be able to afford this and I would really like to own my car. I really should have looked at getting a car around £10,000 which I could then afford to buy and own it out right myself. I don’t want to own my car at present as it will take 6 years to pay it off but which time I will want to change again.

    Is there anyway of being able to change my car before the 3 year contract is up? For example If I instead go for a Toyota Aygo this could be £10,000 and I could almost own it after the 3 years.

    Sorry I hope this makes sense!

    Thanks,
    Nicola.

  87. stuart

    Hi Rahul. You are paying interest on £12000 (£15K price of the car minus the £3K deposit), which is the total amount borrowed. Your monthly payments include interest on this full amount. You repay £X per month plus at the end of the agreement you give back the car or pay £6500 instead.

  88. stuart

    Hi Nicola. Yes, you can change the car before the end of your current agreement. You need to settle the current agreement early and then start a new agreement on whatever you want to buy next. It is not unusual for people to want to change down to a cheaper (or cheaper-to-run) car.

  89. Hi Stuart.

    I bought a brand new car in Dec 2013. I put down a £250 deposit and I am scheduled to pay £263 P/M for 4 years with the usual ballon payment at the end. However I am in the military and I am about to go away for 6 months. Instead of the car being sat stagnating, burning a hole in my pocket for 6 months (£1578) I am looking to sell it and buy a new car when I get back. I have just spoken to Renault Finance and the settlement figure is £13589.40 however the car is only worth £10500 now.
    Is there any way around this?

    Many thanks in advance.

  90. stuart

    Hi Chris. There’s no real way around it, because PCPs tend to work that way. You have only had the car 9 months out of a 48-month agreement, and you initial depreciation is greater than your monthly payment. After a while your depreciation rate will slow down and you start to reel in your negative equity. Have a read of our article about settling a PCP early for a more detailed explanation.

  91. Thanks Stuart really appreciate the advice and the link is really useful.

    I’ll probably keep it for a year as I do love it then ask them about the option of changing.

    Thanks again.

    Nicola.

  92. Hi Stuart, I am planning on taking out a PCP agreement but am trying to find out how this agreement will effect the amount i can borrow on a mortgage. if the car PCP finance is £20k, will this finance be registered like a loan and be deducted from my potential mortgage amount? Or will they just look at the monthly payment and deduct that from my monthly disposable?

    Thanks
    Gav

  93. stuart

    You’d need to speak to a mortgage advisor or your bank about how they assess your mortgage application. One of the key tests is an affordability, so they are looking at your income against your expenditure. Obviously if your monthly car payments are £300, you have to be earning enough to comfortably cover that plus unexpected costs (which all cars will eventually have) and still have plenty left over to afford your mortgage payments plus unexpected costs (which all houses will eventually have).

  94. Hi Stuart,

    I’m 20 months into a 37 months PCP with Fiat / FGA Capital for a Fiat 500 1.2 Lounge 2013 plate.
    Cash price (inc VAT) £11,810.00
    Fiat contribution £500
    My Deposit £1,500
    Amount to finance £9,810
    Interest charges £766.96
    Balance £10,576.96
    36 monthly payments of £164.86
    Final payment £4,642
    Option fee with final payment £285
    Total amount payable £12,861.96
    APR 4.7%

    However we’ve been very unlucky with damage to the car. Firstly someone reversed into the front of the car causing 2 small scratches by the number plate, then someone punched the passenger door and just yesterday someone hit the car drivers door and side panel. We’ve contacted the Police and insurance company.

    I went to see our local dealer today who offered me an early upgrade to a new Fiat 500 for £186 a month for 4 years at 7.6% APR. They want to use our insurance to fix our present car, with their contribution of £1,500 and me having to pay about £196 cash. This values my car at £6,000 about £1,400 under market value when made good.

    If I use my insurance to get the car back to good condition do you think I would be better off waiting for the end of the PCP and getting the GFV of £4,642? We are well under the 6,000 pa mileage.

    Many thanks,

    Jim

  95. stuart

    Hi Jim. My advice, despite what car dealers may tell you, is never assume your car will be worth more than its GMFV. If you happen to have equity in the vehicle at the end of the agreement then it’s a bonus, but don’t plan on it happening. In terms of claiming your GMFV, the finance company will be very strict regarding scratches, interior marks and service history. You can’t trade any penalty charges off against lower mileage, so you may still have an outlay even though you are well under the agreed mileage.

  96. Hi there. I have recently taken out a car with motorpoint on their boomerang finance option through black horse. I’ve got a fiat 500 which cost 9000, and total borrowing is 14000. after some thinking I’ve now decided that normal HP finance would have been more suitable. can you switch from the one finance option to the other?

    Also if I was to trade the car in, could I trade the car in for something lower in value and from a different dealer (would this mean my monthly payments or term would reduce?)

  97. stuart

    Hi Rach. You can’t change finance agreements mid-stream, so you would have to settle your current finance agreement before starting a new HP. As for changing the car to something cheaper elsewhere, yes you can but it will cost you a lot of money to do so. You will have to settle your current agreement, which means that you will owe close to the full £14,000 and your car is now worth quite a bit less than £9,000 thanks to its immediate depreciation.
    Your best bet for now would be to keep paying your car off, and if possible save some additional money to put in when you finally need or want to change it.

  98. Hi Stuart, I bought a car on a PCP agreement last May. I have recently found out that the annual mileage the dealer quoted on the agreement is approxiamtely 6000 miles less than i would actually do a year. Is there anyway I can arrange for this to be changed? As I was never made aware of it at the point of sale and never would have agreed if I knew.

    Thank you

  99. Hi Stuart

    I’ve tried several online PCP payment calculators to try and work out likely repayment costs but can’t seem to find one that matches the Dealer’s examples. As a result I’ve tried creating my own spread-sheet to calculate this but again I can’t get the figures to match up. Do you know the exact algorithm used to calculate monthly payments with any given combination of deposit, term, GMFV and APR? I appreciate the only certain way is to request a personalised quote from a dealer but I tend to do a lot of research before buying a new car and it would be helpful to work it out for myself.

    Thanks in advance

    Mark

  100. stuart

    Hi Jen. Contact the finance company and they should be able to be able to up your mileage allowance to match your driving. Bear in mind that this will increase your monthly payments to cover the increased depreciation and reduced GMFV based on the higher mileage. They will probably be unsympathetic to your suggestion that the dealer did you not make you aware of the mileage, as it is your responsibility to read and understand all the details of the contract before signing it.

What are your thoughts? Let us know below.

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