To help you decide which type of vehicle finance would best suit your needs, we will evaluate the pros and cons of each and let you know what type of person would suit the finance option best.

For individuals looking to finance a car or van, one potential option is the use of a Personal Contract Purchase (PCP).

PCP explained

A PCP finance scheme would suit those who have the intention of purchasing their vehicle at the end of their contract, rather than giving it back.

Customers opting for a PCP will pay a deposit for their chosen vehicle, followed by low monthly payments for the remainder of the contract.

In addition, a Guaranteed Minimum Future Value (GMFV) will be calculated by the dealership. This balloon payment figure is the amount that you would need to pay at the end of your contract in order to take ownership of the vehicle.

With a Personal Contract Purchase, customers will also be able to part exchange their vehicle for a new model at the end of the contract.

If the chosen new model is worth more than the calculated GMFV, then customers will receive the higher amount as a deposit on their next car. If the new model’s price is lower, then customers will get the GFMV instead.

Customers can also choose to simply hand the car back to the dealership at the end of their contract, rather than purchase or exchange it.

PCP example

The following is an example of a PCP finance scheme for a customer wanting to finance a Honda Jazz 1.2 i-VTEC S.

In this finance example, the customer’s contract will be for 37 months, with an initial deposit of £1,000, 0% APR representative and an agreed maximum mileage per year of 10,000 miles.

A breakdown of the payments would be as follows:

36 Monthly Payments - £148.20
On the road price - £10,495.00
Customer deposit - £1,000.00
Total amount of credit - £9,495.00
Final payment - £4,159.72
Option to purchase fee - £0.00
Credit acceptance fee - £0.00
Total amount payable - £10,495.00
Representative - 0.0% APR
Excess mileage - 2.00 p/mile

Pros:

  • By paying fixed monthly costs , customers will be able to budget more easily and plan where to spend any incomings each month
  • As a PCP only requires a small deposit and lower monthly payments than purchasing a vehicle, customers will have access to a wider range of models
  • Customers who aren’t satisfied with their chosen model can easily walk away at the end of their contract and not have to purchase the vehicle
  • PCP is flexible; customers can defer payments thanks to the GFMV and can also refinance them at the end of the contract
  • Customers will avoid the risk of ending up in negative equity with a PCP.

Cons:

  • Comprehensive insurance will need to be taken out before using a PCP, as customers do not own the car until the end of the contract
  • If customers wish to buy their financed vehicle, a PCP finance scheme will work out to be more expensive overall than other finance options such as a hire purchase agreement
  • Customers who exceed agreed mileage limits will incur extra costs.

Why should I opt for a Personal Contract Purchase (PCP)?

If you want to be able to drive a vehicle that you would not be able to afford outright, then a Personal Contract Purchase would be the ideal choice for you.

Furthermore, a PCP finance scheme would suit those who want to drive a vehicle and pay monthly instalments for it, but do not want to hand it back at the end of their contract.

A PCP would also be suitable for motorists who may perhaps have trouble budgeting, as the fixed monthly costs would make this easier.