Car Finance PCP Explained

If you’re considering your options for financing a used car purchase, it might be worth looking at taking out a Personal Contract Purchase agreement (PCP).

What is a Personal Contract Purchase agreement?

With a PCP agreement, you just pay a percentage of the total amount borrowed. The sum you pay equates to the car’s depreciation figure during the term of the PCP. What’s left outstanding on the balance of your loan is referred to as the ‘balloon’.

A PCP agreement requires that you put down a deposit on the car that you want to buy, the balance being covered by the PCP. You can usually use your existing car in part-exchange for the deposit or you can pay cash if you prefer.

A PCP agreement runs for a pre-agreed term, usually from 18 months up to around three years. The longer your agreement term, the lower your monthly repayments are likely to be.

The ‘balloon’

The amount that you repay under the PCP will be based on the lowest predicted value of the car when the PCP agreement ends. You will be required to pay the difference between the car’s purchase price and its predicted value.

You can pay the balance in cash, in which case the car immediately becomes yours, or you can return the car in part-exchange for another and taking out a further PCP to fund your purchase.

A PCP can be a very useful and cost-effective way of buying a used car. To find out more about how to finance the purchase of the car of your dreams, why not have a chat with the experts at Thompson and Smith Ltd on 01507 602222 today?