Part 1: PCP explained - Car finance made easy

Car finance can sometimes be a confusing and daunting process especially when everything is not clearly explained. Here at Smiths Motor Group we have created a three-part blog explaining the three main types of finance so that you fully understand and can explore the different options that are available to you.

PCP or as it is formally known as Personal Contract Purchase is an alternative funding method which is designed to help you achieve manageable monthly payments without the need of a large deposit. PCP agreements can be taken for up to 48 months dependent on Manufacturer programs.

The reason you are able to achieve a lower monthly payment is because there is a guaranteed future value at the end of the agreement. The guaranteed future value, or as normally known as the optional final payment, is what the finance company guarantees the cars will be worth at the end of the finance agreement.

As the customer, you pay a deposit of your choosing, you pay your monthly instalments and at the end of the agreement you have three choices available to you:

Pay the optional final payment and keep the car
Part exchange the car with a dealership and take out a brand-new car on a brand-new agreement
Hand the vehicle back to the finance company.

When you request a finance quotation you will be asked your annual mileage, the mileage will form part of the calculation that determines what the optional final payment is going to be along with your monthly payments. Excess mileage charges do exist within the finance agreement, so you will need to be realistic. That said, the only time an excess mileage charge will be charged is if you had exceeded your stated mileage and decided to hand the vehicle back to the finance company at the end of the agreement.

The benefits of taking out a PCP policy is that it offers more flexibility. You can change your car for a new one, more often. Monthly payments are reduced and if buying new, the vehicle will be likely to be under warranty for the whole of the agreement.

There are offers when purchasing a car from a dealership, these offers include deposit contributions. This is by far the most popular funding method for people who are purchasing cars.

As always, we hope this blog has helped answer and questions you may have had, but if you require any further information, we are always hear ready to help you.

Keep your eyes peeled for part two and if you have any questions on Car Finance please don’t hesitate to contact us by clicking the buttons below.

See you all soon for part 2!

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Company Info

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Reg Office: Sturrock Way, Bretton, Peterborough, PE3 8YL

Reg. Company Number: 359860

VAT Reg. No. 120617216

Financial Disclosure

F.P. Smith Holdings (Newark Avenue) Limited, F.P. Smith Holdings (Ilkeston) Ltd, and F.P. Smith Motors Ltd are Appointed Representatives of Automotive Compliance Ltd, who is authorised and regulated by the Financial Conduct Authority (FCA No 497010). Automotive Compliance Ltd’s permissions as a Principal Firm allows F.P. Smith Holdings (Newark Avenue) Limited, F.P. Smith Holdings (Ilkeston) Ltd, and F.P. Smith Motors Ltd to act as a credit broker, not as a lender, for the introduction to a limited number of lenders and to act as an agent on behalf of the insurer for insurance distribution activities only.

We can introduce you to a selected panel of lenders, which includes manufacturer lenders linked directly to the franchises that we represent. An introduction to a lender does not amount to independent financial advice and we act as their agent for this introduction. Our approach for a new car purchase is to introduce you first to the manufacturer lender linked directly to the particular franchise you are purchasing your vehicle from, who are usually able to offer the best available package for you, taking into account both interest rates and other contributions. If they are unable to make you an offer of finance, we then seek to introduce you to whichever of the other lenders on our panel is able to make the next best offer of finance for you. Our aim is to secure the best deal you are eligible for from our panel of lenders. Lenders may pay a fixed commission to us for introducing you to them, calculated by reference to the vehicle model or amount you borrow.

Different lenders may pay different commissions for such introductions, and manufacturer lenders linked directly to the franchises that we represent may also provide preferential rates to us for the funding of our vehicle stock and also provide financial support for our training and marketing. But any such amounts they and other lenders pay us will not affect the amounts you pay under your finance agreement, all of which are set by the lender concerned. If you ask us what the amount of commission is, we will tell you in good time before the Finance agreement is executed. All finance applications are subject to status, terms and conditions apply, UK residents only, 18’s or over. Guarantees may be required.

In the event of disputes we are unable to resolve the Retail Motor Industry Federation (RMI) National Conciliation Service will offer free impartial advice and when appropriate an Alternative Dispute Resolution (ADR) service that we are fully committed to. For further information you can visit their website at www.nationalconciliationservice.co.uk or call 01788 538317.

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Part 1: PCP explained - Car finance made easy