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
News
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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Supererogation 31 October 2016

Anecdotal knowledge

Overall a fair and representative article which loosely covers most of the major points. However some of the comments are clearly based on anecdotal evidence rather than a fuller understanding of the car finance market. No one product is the panacea; all have strengths and weaknesses and all are ultimately dependent on cost. In terms of overall market share PCH may well ultimately supercede PCP which in turn superceded HP which superceded outright purchase. PCP currently benefits from "voluntary termination" which allows an entirely legal, no-cost option for the customer to terminate their PCP prematurely within certain parameters. This clearly also often helps the dealer secure another sale. However PCH has a rather clever ruse all of its own... On any 'purchase' the vehicle price must be shown on the attendant documents (PCP/HP/OP) whereas on a PCH document only the rental (and any other associated costs) need to be shown. Hence in the real world manufacturers can discount vehicles via the PCH method without disclosing the sale price. Clearly when, as a manufacturer, you are distress selling vehicles yet do not want to be seen to be doing so (for fear of damaging image and/or residuals) the PCH route is highly preferable. So, when considering your finance options, visit the dealer for the best PCP rates then visit an aggregate site or broker for the best PCH deals before making your decision.
GOJones78 30 October 2016

PCP deals

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.
xxxx 31 October 2016

Cash is still king

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.

GOJones78 31 October 2016

Cash or PCP?

If you literally have the cash ready to spend from savings, then a well discounted pre reg is often the way to go. Basically a brand new car but with several thousand off the list price.
MotorTrade 31 October 2016

Wrong

Deposit contributions are from the finance house not the Retailer. So not only would you get the £2500, but you could also get a discount off the car too. Giving a total at least £2500 more than your 'cash' discount. You are actually doing yourself a disservice by being so naïve. Also, to do some simple maths, if its 0% finance and you're getting £2500 for doing it...how is that not much difference? Good old saying; If it appreciates buy it, if it depreciates lease it. As it might now be obvious, I work in Sales. Have done for 6 Years. Cash is most defiantly not king. In fact its so far away from being a King that if you asked to knock anything off, It would be the wing mirrors
tlb 31 October 2016

Cash is still sort of king

MotorTrade wrote:

Deposit contributions are from the finance house not the Retailer. So not only would you get the £2500, but you could also get a discount off the car too. Giving a total at least £2500 more than your 'cash' discount. You are actually doing yourself a disservice by being so naïve. Also, to do some simple maths, if its 0% finance and you're getting £2500 for doing it...how is that not much difference? Good old saying; If it appreciates buy it, if it depreciates lease it. As it might now be obvious, I work in Sales. Have done for 6 Years. Cash is most defiantly not king. In fact its so far away from being a King that if you asked to knock anything off, It would be the wing mirrors

You are 100% right about the deposit contributions - the finance house will provide you with a discount on top of whatever you can negotiate with the dealer. However the fact remains that PCP interest rates are still generally at 5-6% or higher - this is quite a lot to pay for a loan, and certainly more than you can guarantee returning on a low risk investment. The optimal path is to take out the full PCP package - and then pay it off straight away if you have the cash to do so - there is nothing stopping you doing this - and the finance company is not allowed to penalise you for doing it. That way you get the advantage of the deposit contribution, and avoid getting stung for the PCP loan.

centenary 30 October 2016

Excess mileage charge on most

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.