Currently reading: PCP (Personal Contract Purchase) explained: how to get it right
British buyers are increasingly turning to PCP deals when buying a new car; we run through seven ways to make sure you maximise an agreement
Andrew Frankel Autocar
2 mins read
30 October 2016

PCP or Personal Contract Purchase deals are becoming an increasingly popular way for British motorists to run brand new cars.

With attractive down payment and monthly rates, PCP deals can often work out as the most cost effect way to land yourself with the latest model.

We run through seven key pointers you should follow to make sure you get the most from a PCP agreement.

1. Always work out the entire cost of the plan, including not just what you’ll be paying each month but also the deposit. Remember also that PCPs frequently last for as little as two years or as long as four.

2. The size of the initial deposit and amount paid each month are inextricably linked; the less you pay for one, the more you’ll pay for the other. Make sure that the plan you choose is the right one for you.

3. Companies offering PCPs must also allow you to buy the car outright at the end of the contract period and for a sum agreed at the time of the contract guaranteeing its future value. However, this has the effect of turning the PCP into a hire purchase (HP) agreement and, in such cases, it may be cheaper and better to take out an HP plan instead.

4. Beware excess mileage charges. Have a good idea about how many miles you’re likely to drive each year, and if the plan doesn’t cover that with space to spare, take care. PCP companies make a huge amount of money from people who don’t have a realistic approach to mileage and then get clobbered for every additional one they cover.

5. Check what is and isn’t covered. Most include road tax and some include servicing. Few include wear and tear. How much will it cost you if you return the car with scratched paint or damaged alloy wheels.

6. Remember that if you plan to keep the car, or even want to retain that option, it may still make more sense to buy it outright if you can afford to, especially with lending rates at their current historic lows.

7. As in all important deals, don’t be seduced by the idea of a shiny new car wearing the latest plate until you have done all the maths, checked the small print and made sure the deal makes sense for you. 

Read more: The best new cars for £100 per week or less 


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30 October 2016
Item 5 sounds more like PCH rather than PCP, most PCP deals i've come across don't cover road tax beyond the initial 1 yr on the road. With a PCH the finance company normally remains the registered keeper and retains the V5, so they get the tax notices , whereas with PCP you get the V5 and are the registered keeper and become responsible for keeping it taxed and legal.
You then also get maintained PCH contracts that cover the servicing and possibly tyres. And manufacturers offer or include service plans with PCP much as if you were buying outright, haven't seen one that included tyres though.

30 October 2016
PCP for cheap small cars on £99 down £99 a month can make sense for people who want a low risk method of buying a car where the buyer isn't very savvy at buying a good second hand car. Similarly at the premium end it can make sense due to suppliers subsidising the finance and strong residuals but buyers have to factor in the fact that their next deposit won't come from equity in the car.

30 October 2016
PCPs attract a lot of additional punters that don't have enough cash to buy outright or even pay a substantial deposit. These people wouldn't come into dealers otherwise.

With margins so tight and bank rates so low, the relatively high interest rates for PCPs suggest they make more money from the finance rather than the sale or servicing.

30 October 2016
But some other gotchas...

1) who says the mileage you do now will be the same in 2 years time? So even if you estimate accurately now you can still get caught out. You bear this risk...

2). How do you know what the charges will be if the car is returned with bumps and scrapes? Up front these policies are opaque at best. Again you gear the risk, or else budget for resprays/refurbed wheels to be on safe side. Again you bear the risk...

3). Headline PCP rates are always for base spec models in solid colours. A few extras and the monthly payments soon add up. Much easier to add a few quid a month on than to sell several hundred or thousand quid on the list price. But you're still paying.

That's not to say PCPs never make sense. If you're a low mileage user or there's an attractive 0% offer, it might. But it's nearly always made more financial sense to buy outright with the current cheap unsecured loans, and then sell the car on. If you can't get cheap credit or a big enough loan to buy that £30k car? Maybe have a proper think about why that is...

30 October 2016
We have one car bought on personal loan and one on PCP. The dealer was clear on the charges for damages and the car came with a tool for measuring scratches and dents. That said it's irrelevant as we never hand the car back and always trade it in against another car in the end. It's only ever going to be an issue if the trade value plummets against the MFGV.

PCP works for premium and budget cars but is pointless for the mid market.

30 October 2016
What did the charges look like?

30 October 2016
Thank you for editing this. This is a million times better and seems like a far more balanced article than before, highlighting the pros and cons of a PCP.

30 October 2016
Excess mileage charge on most PCP's is a reasonable 6 to 9p per mile. Even if you do 2000 excess miles at 8ppm, that only another £160 a year. Any deal charging over 10p per mile should be avoided because its very hard to determine what your mileage per year is going to be. Over estimate the mileage and you'll pay a higher monthly payment. Under estimate by too much and the bill will be bigger than expected.

30 October 2016
While it's definitely correct that most new cars are sold on PCP, it's no longer down to affordability as the Manufacturers make it a now brainer to buy this way. Mazda for instance, currently have 0% deposit and manufacturer's deposit contribution of up to £2500. Why would you pay cash? Regarding the excess mileage, it's very rare now for people to hand their cars back at the end of the term. Most will trade in and use the excess value leftover towards there next purchase. The mileage therefore makes no difference. Also, some manufacturers are including free/ subsidised servicing if you take out a PCP and if you decide it's not for you, then just pay it off early. It's no different to normal HP in that respect, unlike a lease deal where there are penalties. Unless it's Peugeot "just add fuel" then road tax etc, is an extra though.

31 October 2016
GOJones78 wrote:

While it's definitely correct that most new cars are sold on PCP, it's no longer down to affordability as the Manufacturers make it a now brainer to buy this way. Mazda for instance, currently have 0% deposit and manufacturer's deposit contribution of up to £2500. Why would you pay cash? .

Because you could knock more than £2500 off the price off the car. Also, if you had the cash and you'd be surprized how many people do, 0% doesn't make that much difference.


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