With a record amount of cars being sold using the finance plan PCP, there has been a lot of scrutiny regarding its use to purchase new vehicles which has seen the Bank of England and the press look into the industry a lot more closely.
But is PCP that bad? Well figures showing it is the most popular way to buy a vehicle, say it can’t be. PCP can be a good way to purchase a vehicle but as with everything it’s about the deal you are getting and whether it suits your needs.
Before we tell you how to what to look out for when using PCP finance let us tell you what it is….
What is PCP?
PCP stands for Personal Contract Purchase, it is a type of finance based on a partial amount of the car usually the price of the car less the deposit and Guaranteed Minimum Future Value GMFV or Balloon. This way of financing a car brings your loan payments down compared to traditional finance agreements and gives you the benefits of both leasing and HP in one finance package.
Who owns the car?
This is one of the most common questions asked about PCP but the reality in most cases is that the vehicle is owned by the finance until if and when the finance on the car is paid off. The registered keeper can be the person who took out the deal but these are two different entities
The cost of borrowing on a PCP is set up so you pay the interest on the FULL AMOUNT of the car. This is very important to understand when looking at the total cost of the deal.
Benefits of PCP
- Lower Monthly payments compared to HP as you are only borrowing a partial amount of the cars value.
- You have the option to buy the car at the end
- Most PCP deals gives you a better car for your money as payments are more affordable you can get a better spec or model
- You get to change your vehicle more often which gives you the ability to own the most technology advanced and economical vehicles on the market.
- Less Maintenance worries if your PCP term is based around the warranty period of the car you will always have a car under the manufacturers warranty
- Lower deposits in most cases, this is dependent on your credit you can put lower money down than traditional finance options. Leaving you with more capital to do smarter things.
So now we have dealt with the basics how do you get the best deal on PCP?
There are a number of tools dealers use to get you into a PCP deal some will be beneficial some are used to make things more attractive than they actually are.
Beware of the grab your attention deal!!!
You will see some great deals advertised with a "from £99" but make sure the car is the one you want. Some of these deals are based on low spec cars with unrealistic guaranteed minimum Future Values (GMFV). The likelihood is by the time you get the spec you want and mileage you need the price will rise considerably.
Ask for more….
Most dealers have incentives to get you into a deal. Car manufacturers will support a deal with extras such as Free insurance, Free equipment options, Discounted or Free servicing or Free Finance. See what extra you can get from a deal.
Cost up the full deal
When looking at the PCP the actual price your paying could be lost in deposit and monthly payments. You need to see exactly what your paying for the new car especially if you decide to keep it. Check its price is in line with the value of the car if you were doing a straight cash deal. Also check how much the finance on the car is actually costing you. Car buying guru is happy to help to ensure you are getting the right price on any deal with any dealer Contact us here.
Know your mileage and wear and tear pattern
An important aspect of PCP is to keep within your mileage you can be penalised heavily for going over your mileage which can make the deal become less of a bargain. Similarly keeping the car in good condition is vital to ensure you achieve above your GFV. Go to our Car maintenance section for details on where to bring your cars back to their original standards.
Be cautious of High Guaranteed Future Values
A high GFV set by a manufacturer will have two effects it will bring your payments down. However, if this GFV is more than what a dealer would pay for it it will leave you with little or no equity and in some cases negative equity. This is a common trap by dealers to get you into a car for now not caring about what happens in the future.
Protect your equity
Being able to have equity in your old car to put towards the deposit in a new car is what you ideally want from an PCP deal. It is very beneficial to look at how much more your car be worth than its GFV. This is a hard task and depends on many factors. An expert such as our staff at Car Buying Guru can help you get a deal that protects your GFV. Contact us now for more information.
Keep Deals Separate
Dealers have a knack of tying in part exchanges or old PCP deals in with a deal for a new car to make things look more attractive when in fact it could be disguising an overall poor deal. Always negotiate the deal to dispose of your old car first make sure you are happy with the figures before negotiating your replacement. Car Buying Guru has excellent vehicle disposal processes which get you the best prices for your car.
Getting the right deal does require knowing what you are doing and can be sometimes best left to an expert for advice and information and great PCP deals contact Car Buying Guru now.