When discussing the funding of a car, there are a number of options, each with their pros and cons.
One such plan that has become very fashionable in more recent years is Personal Contract Purchase (PCP) car finance.
However, just what on earth is PCP car finance? Ever felt bamboozled by the jargon or how it operates?
Do not worry; that is flexible finance that lets drivers get new cars without committing themselves to long terms for traditional loans.
So whether you’re thinking of upgrading your ride or just interested in how PCP would work for you, this guide puts it in very basic terms to make your next purchase on the vehicle an informed one.
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How Does PCP Car Finance Work?
PCP stands for Personal Contract Purchase and this is one of the ways that people drive new cars without paying the full cost upfront.
It all begins from selecting your car getting to agree to the price. So once that’s settled, you’d pay an initial deposit — generally, about 10% of the car’s worth.
How ailment of the remaining balance is by paying fixed monthly payments over a definite period, say two to four years is that these monthly payments are calculated based on the depreciation agreed upon for the vehicle within your contract.
At the end of the period, you’re basically left with three choices:
You can make your final balloon payment to take full ownership of the car, simply return it with no further obligation, or take any equity towards funding another vehicle.
It’s this flexibility that makes PCP a rather attractive proposition for many who want affordability and a choice in the world of cars.
Pros and Cons of PCP Car Finance
PCP car finance provides flexibility and lower monthly payments as compared with regular loans.
One can drive a new car every so many years without the long-term commitment to ownership.
Often, this usually includes warranty coverage that gives peace of mind as far as maintenance is concerned.
However, there’s the small matter of handing the car back at the end of your term unless you make that final balloon payment to own it. Excess mileage beyond what’s agreed means extra charges, and these can quickly stack up.
One other contribution will be that although monthly payments are lower than total purchasing, they do not accumulate to any equity as outright buying would.
So, if you are considering having a long-term investment with your car, then PCP might not serve your purpose.
Getting all these aspects helps you make an informative decision suited to your financial situation and driving habits.
Requirements For Getting a PCP Car Finance
Obtaining PCP car finance is easy, but one must qualify. Typically, proof of identity and address will be checked by the lenders.
A valid driving license acts as identity proof, and the utility bills or bank statements will provide evidence of your residence.
A healthy credit rating is very important in this process. To put it to the lenders’ perspective of your reliability.
It always sets you in a stronger position if you have a good history of past loans or credit card usage. Income verification also has an important role.
For instance, if you’re self-employed, you will have to present payslips or tax returns. This indicates to the lender that you are in a position to comfortably make the monthly payments.
Age is important, too; most of the lenders will require that the applicants be at least 18 years old.
In meeting these basic criteria, this sets the stage on being approved on PCP car finance without hitches.
What is PCP Car Finance Contact Number
When searching for PCP car finance information, having the right contact number proves very important since you are able to contact the lender or dealer directly in case of any questions that you may have.
Most finance institutions provide such numbers usually found on their websites or in the paperwork given at the time of signing a PCP agreement.
Of course, it would be in your contract paperwork, which all too often includes such important contact details.
You can also get further clues and straight lines by visiting local dealership websites.
Call them early to have any question about payment or terms of the PCP deal ‘clarified’. Save this number so you have it ready for quick reference.
What is Disadvantages of PCP
PCP car finance though comes with attractive benefits also has several disadvantages.
Besides the major drawback that there is always a mileage limit imposed in the contract, exceeding which hefty charges can be levied, probably on most of the borrowers unawares.
The other worry is about the big final payment, known as the balloon payment, if they want to own the car at the end of their deal. This sum can be very large and not easy for all people to pay.
Also, PCP deals tend to have a higher total cost than normal loans or buying with cash. Interest rates can change a lot based on credit scores and lender rules.
At the end of your payment, you will not own any equity in the car. This makes PCP very unattractive compared to any other financing option for those individuals who would like to own something after a long period.
Alternatives to PCP Car Finance
If you are looking into alternatives to PCP car finance, there are a few worth considering.
One fairly commonly pursued option is Hire Purchase. The premise behind this is that you pay for the vehicle in monthly installments, and ownership of it transfers over to you at the end of the term.
Another way is Personal Contract Hire (PCH), which is leasing in essence. You continue to pay a fixed monthly charge for the vehicle’s use without any ownership obligation At the end of the agreement, you just give the vehicle back.
OF course, there are traditional bank loans. In this way, full control of the acquisition is at your disposal, and regarding mileage and modifications, the flexibility is allowed.
More than that, straight-out purchasing a used car is one of the less expensive ways to work with financing and depreciation costs.
Understanding The Fine Print
Reading the small print in PCP car finance is vital. It’s where they bury crucial details of your deal.
Jargon’s heavy and not getting all features could end up costing you later. You are looking after the miles.
Most of the time, going over the stipulated distance can lead to big charges as your contract ends. Make sure to know what happens if you end it early.
Watch out for fees for maintenance or wear and tear on the vehicle. Some contracts include this, and some do not, so it is crucial to be clear about this at the outset.
Check what interest rate is associated with paying monthly. The tiniest change can make a huge difference in total cost over time.
This particular information is the power that you, as a consumer, need to flow through PCP finance options effectively.
Tips for Choosing a Reliable Lender PCP Car Finance
For PCP car finance, pick a known lender for ease and safety. Look up many lenders and what they offer.
Check for reviews from other users to see their name in the market. Make sure the lender has a rule by the Financial Conduct Authority (FCA) in your nation.
This shows they follow the law and standards that protect buyers. Ask for rates from various lenders and compare them. Even a small difference will mean a lot at the end of it all.
Do not ignore any fees that go with the loan. Some may have an arrangement or early repayment fees.
Make sure you know what you are getting into before signing anything. A transparent lender should be willing to explain every bit of the agreement.
Questions make answers unfold. If a lender is reluctant to provide information, be wary of them. Let intuition lead the way.
If anything seems amiss while talking to a prospective lender, look for other options instead.
These would go a long way to ensure getting the right PCP car finance deal as well as staying away from any unnecessary pitfalls along the way.
