PCP finance on a new car
As we said earlier, the PCP is by far the most common way for private customers to pay for a new car. Because new cars are only sold via manufacturer outlets (either direct sales or dealerships), the finance agreements are almost always handled by the car manufacturer’s own finance company.
Finance offers are part of car companies’ overall marketing strategy, so they are very much tied into sales of each model in a range. As you’d expect, the best offers are usually on cars that a company is struggling to sell.
Finance offers are used instead of traditional cash discounts, so you no longer really see advertisements that say “save thousands on this new car”. Instead, there will be very low interest rates or deposit contributions offered, which result in a temptingly-low monthly price based on a specific PCP quote, with the rest of the details buried away in the fine print.
Almost all new car advertising is now done using example PCP finance quotes rather than vehicle prices. It’s important to understand that these are simply examples, and you can tailor a finance plan to suit your needs. If that means a higher or lower deposit, shorter or longer term, or adding any additional options to the vehicle, it shouldn’t change the interest rate or deposit contribution (if any) being offered.
Many new car offers are time-limited, meaning you have to have signed an order and taken delivery by a certain date. If you don’t, you may find that the interest rate suddenly goes up and/or the deposit contribution is no longer available, meaning your new car is suddenly a lot more expensive than you expected.
If you’re buying a car that is in high demand, the finance offers won’t be very attractive – after all, there’s no need to discount a car that’s selling well at full price. If that’s the case, you may find that specialist car finance companies can offer you a better deal than the dealer (see below).
PCP finance on a used car
A PCP works in exactly the same way on a used car as a new car. The only difference is usually the size of the numbers involved. Uptake on PCP finance in recent years has become far more popular – basically piggybacking on the popularity of this kind of finance for new cars.
The offerings on PCP deals for used cars vary greatly as there are rarely any big discounts from car manufacturers (who would much rather sell you a new car), and dealers tend to use whichever finance company they have a partnership with, rather than working exclusively with the manufacturer’s finance company.
As a rule, interest rates on used cars tend to be higher than for new cars and there are rarely any significant deposit contributions. That means that, although a used car may have a sticker price that’s significantly cheaper than a brand new car, it might not be that much cheaper in terms of your monthly payment because there’s less discounting and you have to pay more in interest.
However, the other side of that coin is that there are far more finance companies who can offer you a deal that is as good as, if not better than, the dealer’s quote. Very few customers take advantage of this, but you can easily save hundreds, if not thousands, of pounds by getting a better PCP finance deal than the one offered to you by a dealer.
Continued on next page: Disadvantages of a PCP and other considerations
