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Car finance advice

How to understand a PCP car finance quote

Don't let a car dealer rip you off with a costly PCP finance agreement. We explain exactly what to look out for so you can get the best deal.


5. Retail cash price

This may be listed as total on-road price or something similar. It’s basically the overall price of the car, including any extras you have added and other costs like road tax.

If you want to bring this payment down, you can:

  • choose a cheaper car
  • remove unnecessary extras like GAP insurance or paint protection (the dealer will hate that, but that’s because they make a lot of commission on those extras)
  • negotiate a discount on the price of the car
  • negotiate a discount on the interest rate on the finance

6. Acceptance fee

This will vary between different finance providers, and may or may not be relevant. Almost all PCP car finance contracts will have fees of some sort (unless they specifically say 0% APR). In this particular case, there is no fee here – however some finance companies may try to charge you as much as £100.

7. Optional final payment

This is the amount you will still owe at the end of the duration, also known as the balloon. In a PCP agreement, this amount is the same as the guaranteed future value (which is technically a different thing, but for a finance quote it doesn’t matter). If you want to pay off the finance and keep the car, this is how much you will have to pay.

This amount is what the finance company expects the car to be worth at the end of the agreement. So in this case, the car starts out at £23,900.00 new, and after four year and 40,000 miles it should be worth £9,804.60. That’s 41% of the starting price, which is pretty high for a four-year old car.

The higher this payment is, the lower your monthly payments will be. If you want to keep this payment as high as possible to reduce your monthly payments (which is likely if you’re not planning to make the final payment and keep the car), you can:

  • reduce your annual mileage allowance
  • remove any unnecessary options (like a sunroof or upgraded stereo) and dealer extras (like GAP insurance or paint protection) that increase your starting price but don’t increase the final value
  • stick with the most popular colour and trim combinations (unpopular colours and personalisations can devalue your car)

The finance company will try to take this payment on direct debit unless you hand the car back or part-exchange it before the due date. For more information, have a read of our article about your options at the end of a PCP.

8. Option to purchase fee

Again, every finance company will charge fees here or there. In this example, if you choose to pay the £9,804.60 to keep the car at the end of the agreement, you will also have to pay an extra £10 admin fee. Yes, you’re right – it does seem petty.

9. Total Amount Payable

This is an important number, as it reflects the cost of the car plus the interest and fees you pay as part of the finance. Based on the example above, this amount equals your deposit (£3,000.00), the seller’s deposit contribution (£1,250), 47 monthly payments of £275.42 each, the final payment of £9,804.60 and the final £10 fee.

Even if you don’t plan to keep the car, this is still an important number as it shows you how much you are really paying to finance the car. In this case, the Total Amount Payable of £27,009.34 minus the cash price of the car (£23,900.00) means you are paying £3,109.34 in interest and fees to finance the car over four years.

If you want to bring this payment down, you can:

  • choose a cheaper car
  • take a shorter term (thereby paying less interest)
  • remove unnecessary extras like GAP insurance or paint protection
  • negotiate a discount on the price of the car
  • negotiate a discount on the interest rate on the finance
  • find a finance agreement with a lower APR (interest rate)

What the quote is not required to show is your total debt, which is the amount you ultimately owe the finance company. It is the total amount payable minus your deposit and any deposit contribution. In this case, the debt would be £22,759.34.

A significant amount of debt may affect your ability to borrow money for a house or get credit for other purposes (credit card, phone, personal loan, etc.). Obviously you will make inroads to this debt each month with your repayments so your debt will change each month.

If you settle the finance early, it will reduce the overall debt because you’re borrowing the money over a shorter term.

Voluntary termination
Another reason that the total amount payable is important is because it is used to calculate your voluntary termination point, which is 50% of the total amount payable – in this case, £13,504.67.

Based on the deposit (£3,000.00) plus deposit contribution (£1,250) and monthly payments of £275.42, you would reach this 50% mark after 34 months in this example contract.

For more information, check out our guide to voluntary termination of a PCP or HP.

Your repossession rights are also determined by the total amount payable. If you have repaid less than a third of the total (in this case, £9,003.11, which you would reach in about 18 months) and you default on your payments, the finance company has the right to repossess the vehicle.

Once you have repaid more than a third of the total amount payable, they would have to get a court order to repossess the vehicle. In practice, that means they may be a little more patient with you before going to the effort of trying to repossess your car, as going to court costs money with no guarantee that they would win.

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

Our car finance partners

Looking for an alternative to dealer finance? Our commercial partners can offer you a great deal.

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Stuart Masson
Stuart Massonhttps://www.thecarexpert.co.uk/
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive 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.
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