Pcp Car Finance

There are many options available in the market when it comes to buying a new or used car. In case you don’t want to give the full amount initially to buy a new car, then PCP or personal contract purchase might be the right option for you. If you are not sure whether you purchase is going to be worthwhile and might want to switch over to another car then a PCP loan can be of great help. In fact it is one of the most popular choices for motor finance.

So, what’s a PCP loan? Personal contract purchase loan is a personal contract for people wanting to buy new car. In this you will be making an initial payment and then followed by monthly payments for the contract period. At the end of the contract period you will be faced with two choices-either you can pay the final lump sum amount and be the owner of the car or you may return the car if you don’t like it or may replace it with another one. It’s a flexible finance scheme in the sense that your monthly payments are usually lower than the other kinds of auto finance.

So, how is the cost of PCP finance determined? Well, it depends on various factors like the kind of car you’re going to buy, how much deposit you’re able to put down initially, the length of the contract and the maintenance requirements. An important term that makes PCP different from other traditional forms of auto financing is MGFV or minimum guaranteed future value; which is the minimum amount for which your car may be sold at the end of the contract purchase deal. Since this amount is known at the beginning of the contract, you know how much you will have to pay at the end. The payment of this amount is postponed to the end of the contract period. Thus the MGFV plus deposit are subtracted from the selling price of the car to arrive at the monthly payments. The monthly payments also include interest on the balance and the MGFV. In this way you actually pay lower amounts of your monthly payments.

You have the following options at the end of the contract period (which may last for up to 48 months):
Option 1: If you feel that the car is worth less than the MGFV then you may simply return it to the financing company. If the car is in a good shape and has not crossed the agreed mileage, then you will have nothing to worry. If the PCP includes maintenance also, then the company will be taking care of the repair costs associated with the car.

Option 2: You may pay off the outstanding MGFV and keep the vehicle.
Option 3: If you want a new vehicle you can exchange it with the dealer. If the trade-in value is greater than the MGFV, the surplus amount can be used as deposit for the new agreement. You can also sell the vehicle and keep any profit above the MGFV.

If you have crossed the mileage limit at the end of the contract period, then you will have to pay a fixed amount for every extra mile.

The only disadvantage with PCP is that you don’t actually own the car during the contract period and may loose it if you can’t afford repayment. Otherwise it’s much cheaper than a loan for financing a car.


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