You also have the convenience of being able to sort out your finance and pick your car in the same place. Many of the legal rules that apply to HP also apply to PCPs, for example the third rule and the half rule.
PCP or HP: which car finance option makes most sense?
However, the major difference is that you pay less of the amount owed during a PCP agreement than with HP, meaning you will still owe a considerable amount at the end of a PCP agreement. Your deposit can be paid in cash or, if you already own a car, you can trade it in as your deposit.
Monthly repayments: PCPs generally last for three years and they can have low monthly repayments. This can make them seem more affordable compared to other forms of finance. The reason the monthly repayments are low is because a large portion of the cost of the car is not paid until the end of the agreement. GMFV lump-sum payment : This large, final payment is how much it will cost you to own the car at the end of the agreement. This figure is set at the beginning of the agreement by the finance company. PCPs are among the least flexible forms of car finance. There may also be other limitations, such as not going over a certain mileage limit, and commitments around wear and tear and servicing the car that you must agree to.
The main difference between a PCP and a personal loan is that with a personal loan you borrow the money, pay for your car, and own it immediately. You only own it if you pay the GMFV. As with other types of credit, when you take out a PCP, your finance company will send details of the repayments you make to a credit reference agency.
If during your contract you expect to exceed or find that you have actually exceeded the agreed mileage limit, you should talk to your car dealer about restructuring your agreement. You can restructure your agreement by changing from a PCP to a HP agreement or you can return the car early. By returning the car early you can enter into a new, more suitable agreement which has a higher mileage limit or no mileage limit at all.
For a realistic estimate of your mileage, check your service records or you can work it out using your odometer. The half rule limits your liability the amount you are responsible for to half the PCP price of the car. The agreement from the finance company must show the figure for half the PCP price of the car.
However, you will have to pay the difference between the payments you have made to date and half the PCP price. You will also be responsible for the cost of any repairs that are necessary. You will be responsible for the cost of any repairs that are necessary. If you have paid more than half of the PCP price, you will not be entitled to any refund. If you have paid less than one-third of the PCP price, the finance company can take back your car without a court order. If you have paid more than one-third of the PCP price, the finance company will need a court order to take back the car.
In addition, the car cannot be repossessed from your private property. If your car is repossessed, the lender will generally sell the car and the money goes towards the outstanding debt. But you will still be liable for the difference between what is owed and what the car is sold for.
When you buy goods, including cars, they should be of merchantable quality — that is fit for purpose. If you buy a car on PCP and realise its faulty , you should return to the dealer you bought the car from and ask them to fix it. If the car dealer refuses to fix it or tries to charge you, then you should contact the finance company who you are making your monthly repayments to — as they are the legal owners of the car.
As the legal owners, the finance company has a responsibility to help you get the issue resolved. If the finance company will not help you resolve the issue you can go through their complaints process and if necessary escalate it to the Financial Services and Pensions Ombudsman. But, if the value of second-hand cars has fallen by the end of your PCP, then you may not have any equity in the car at the end of the agreement. And if your car is in poor condition, the value may be lower than you expect. If you have no equity to use as a deposit on your next car, you will need to fund it another way.
Or, if you want to pay the GMFV and own the car, you might find you are paying more than the car is actually worth. At the end of your agreement, if you want to return the car and walk away or enter into a new PCP, mileage becomes important. If you are giving the car back and you have exceeded the mileage limit, you may have to pay a financial penalty. Search Please enter a search term.
The GMFV is the minimum amount the car will be worth at the end of the agreement.
So if the car unexpectedly drops in value, you'll be protected. Lenders are traditionally conservative when estimating the GMFV, so the car is often worth more than predicted — although this trend is less common than it once was. If the car is worth more than the GMFV, you can put any excess payments you have made towards its deprecation into a new vehicle.
How to Get a Good PCP Deal – CarBuyingGuru
Manufacturers push PCP, so interest rates are often low, but they also set mileage limits with an excess mileage charge applied if you exceed them, usually at a pence-per-mile rate. While that's good practice anyway, if the car is damaged and you return it at the end of the PCP deal, the dealer can mark down its value.
If you want to take ownership of the car at the end of the term, PCP will often prove more expensive than hire purchase finance deals, but if you want to hand the car back or trade in for an all new model, as most PCP customers do, it's a good option.
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Click the links below or on the top left of this page to get full guides on each of the key car finance options…. View the discussion thread. VAT number Sign up for our daily newsletter Newsletter. User menu. Choose a model. More like this Opinion. PCP deals can be broken into three chunks: 1.
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