A Guide to PCP (Personal Contract Purchase) Finance

In 1909, the Henry Ford Motor company released the iconic Model T to the general public, for the grand asking price of $850. That’s around $21,000 or £13,000 in today’s money. As well as being ground-breaking in design, the car is credited as being the first affordable model in the world.

That said, it was only the exorbitantly rich and famous who could at first afford to buy a ‘Tin Lizzie’, although prices were reduced within a few years.

The days when that dream car was just out of financial reach are seemingly over. I remember a time when you could only afford a car if you had enough money in the bank or your pay slips were enough to persuade the garage that you could be trusted with a finance agreement.

Nowadays, it’s becoming increasingly popular for people to use Personal Contract Purchase (PCP) finance to get behind the wheel of their dream car. If you’re not sure what PCP is, take a look at this concise guide.

What is it?

First things first. It’s important to bear in mind that while the basic model is generally the same, PCP deals will vary between manufacturers and dealerships. It goes without saying that you should always pay close attention to the details of an agreement and read the small print. It’s also common for individual manufactures to give their plans different names; BMW for example, do offer PCP plans, although the German brand refers to it as BMW Select.

However, there are things that you can expect from all PCP agreements, no matter which car you choose.

PCP is much like renting a car over an agreed period; this is usually around three to four years, during which time you will pay monthly for the car.

The amount of these monthly payments can be reduced by the deposit you put down at the beginning of the contract. This can either be in cash or the value of a car you own, which you offer as part-exchange. The higher this amount or value, the lower your payments will be.

At the end of the contract, you have to opportunity to hand the car back to dealership and walk away. This aspect of the scheme is what a lot of people find appealing. However, if you decide to do this, when you come to purchase another car – whether that be outright or on a similar PCP plan – you won’t have a car to use as a deposit.

The other option is to buy the car outright, paying a final ‘balloon’ payment. Usually, this value is less than the market value of the car, as an incentive for you to purchase it.It is also the main difference between PCP and PCH finance.

What are the terms?

The terms of the contract are agreed between you and the dealership. Again, this is a big attraction for buyers, who can choose the model of the car, the duration of the contract and work to agree on a payment.

However, there are certain things that you need to consider. Part of the agreement is the annual mileage that you do in the car; if you exceed this amount, you could incur charges for every additional mile that you do, resulting in a nasty payment at the end.

It’s a common misconception that should anything happen to the car which falls outside of the warranty, your only option is to take it back to the dealer for repairs. This is not the case; providing you use parts approved by the manufacturer to replace any damaged parts of the engine, this won’t affect the agreement. You can find a wide selection of engine parts at WDS Ltd.

With regards to wear and tear, this is something of a grey area. Naturally, the garage is going to expect you to use the car and it would be unreasonable to expect a three or four year old car to return in the same pristine condition it left in. General wear and tear, such as small scratches in the paintwork, are usually accepted; however, anything more significant, such as deep scratches in the actual surface of the car or dents, will need to be rectified before the dealership will accept the car.

Personal Contract Purchase is a fantastic option for people who like to change their car regularly. What’s more, this could be the easiest way of getting the keys to that car you’ve always dreamed of!

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