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!