PCP explained - what is PCP and how does it work?
Posted on 7th October 2022Taking finance out on a vehicle is a very popular method of purchasing a new car. Though there are a number of ways that you can do this, Personal Contract Purchase (PCP) is a core method offered by dealers, like HPL, as it’s an easy and simple way to get behind the wheel of a new car.
But what do you need to know about PCP finance and could it work for you? Let’s take a look at some of its key elements.
How does PCP work?
PCP finance lets you get behind the wheel of a new car by paying an initial deposit followed by a series of monthly payments. Available on most cars, PCP allows you to obtain a new car without having to pay one large lump sum.
A final balloon payment - how much the car is predicted to be worth at the end of your agreement - is set up front, and you effectively finance the difference between that amount and the deposit you put down in the first place.
How long do PCP agreements run for?
The longer a PCP term the less your monthly payments will be, but typically PCP agreements run for between 24 and 60 months. This may vary but our sales team can help you make the right choice for you, even if you have bad credit.
How much will I pay each month?
How much you’ll pay depends entirely on the size of your deposit, the overall cost of the vehicle, the interest rate that has been offered and the predicted resale value of the car once you’ve finished your term.
However, given the variety of cars offered with PCP finance, you’ll likely be able to find an agreement that suits your budget and timescale appropriately.
Do I own the car at the end of the term?
No. Even though you’re paying monthly deposits, you’ll never officially ‘own’ the vehicle when you get a car on finance. However, there is the option to pay a ‘balloon’ payment at the end of your PCP term which would see you own the vehicle outright.
What happens if I don’t want to pay a balloon payment?
It’s quite simple. When you reach the end of your PCP agreement, you could simply walk away and finish your term with nothing left to pay. However, you could also use any equity built up during your previous agreement as a deposit for a new car and get yourself another set of wheels.
It’s a great option for those people who want the ability to run a new or nearly-new car but without the need to fork out one large payment or lump sum.
HPL staff can talk you through the exact details of a PCP and present you with all the facts you’ll need to decide if it’s the right thing for you. Find out more on our finance pages.