So What Is A PCP Motor Finance Deal?
Like any motor finance deal, a PCP car finance contract allows the buyer to drive away without paying the full asking price straight away. You pay your deposit, agree on your monthly payment rate, and drive away with the car on hire for the duration of the time that you’re paying off the PCP car finance contract. Bear in mind that PCP agreements include the APR, because it takes into account the interest charged on the outstanding balance and any other fees associated with the loan agreement. However, once you reach the end of the monthly payment period, you have three options:
- You can pay a remaining lump sum known as a “balloon” payment in order to keep the vehicle and claim ownership of it.
- You can choose to return the vehicle once the balloon payment is due.
- You can part exchange the vehicle for a new one under a new PCP car finance contract.
The reason that PCP finance monthly rates are cheaper than other finance options is because of the balloon payment containing a significant sum of the agreed price at the end of it. 20% of customers in the UK end up paying the balloon payment at the end of their PCP contract. This is ideal for customers who are OK with renting, however it is important that you are aware of everything that a PCP car finance deal entails.
There can be other agreements in place with a PCP deal including mileage caps or maintenance requirements. This is because you may not own the vehicle at the end of the deal, meaning that it will be back on the market and so its value needs to be kept as high as possible.