The personal contract purchase (PCP) is by far the most popular way for consumers to buy new cars, and is rapidly becoming the most popular way to finance used cars as well.
But the PCP is really not well understood. Repeated research, like this study from 2015 and this one from 2017, has shown that most car buyers don’t understand how PCPs work and are often basing their assumptions on various myths and misconceptions.
Based on the thousands of questions about PCP finance from readers we have received here over the last few years, we have come up with our Top 10 PCP myths – and then busted them. Remember kids, never trust the smiling sales executive or your best friend’s neighbour’s uncle. Trust The Car Expert.
PCP Myth #1: You’re not really buying the car
There is still a misconception that PCP car finance is a lease or rental, rather than a purchase. This is simply not true, even if most buyers tend to treat it like a lease. It’s also a really important point .
A PCP is a form of hire purchase (HP), so you are buying the car over time. It doesn’t officially become your property until the last penny is paid off, just like a classic hire purchase or the mortgage on your house, but you are making payments towards eventual ownership unless you choose not to make the final payment.
It is estimated that fewer than 20% of PCP customers will ever make that final payment, with the vast majority choosing to hand the car back or part-exchange it instead. But the default option in your contract is always to make the final payment, so you are forced to take action to stop that from happening.
For more information, check this out:
PCP Myth #2: You’ll have equity at the end of the agreement
PCP finance is usually sold on the vague verbal promise of equity at the end of the agreement. The idea is that your car will be worth more than the final balloon/guaranteed future value (GFV) amount, and the leftover is what you use as all or part of the deposit towards your next car.
For many car buyers, that certainly used to be the case. However, these days you will be lucky if your car is worth the balloon amount at the end of your agreement, meaning that you won’t have any equity and therefore you will have to come up your next deposit from your own savings.
For some reason, buyers tend to forget that they handed over a couple of thousand pounds for their deposit three years ago, and are now being asked to find another couple of thousand pounds to hand over for their next PCP.
For more information, check this out:
Here at The Car Expert, we are building commercial partnerships with companies who can offer you competitive PCP deals on either a new or used car (as well as other types of finance if you prefer). Check these out before signing any finance agreement with a car dealer:
- We Finance Any Car can arrange PCP or HP finance at competitive rates
- Motorly can find you a great car finance deal, even if you have a poor credit rating
- FairSquare can find and finance either a new or used car, and deliver it to your door
