More Flexible Contracts
If you want to change your car every few years then personal contract purchase or PCP to buy a car is likely to be the best option for you as it offers this flexibility in the contract.
These car deals give you more flexibility by splitting payments over a set amount of time (usually 2-5 years) and allowing you to change or give back the car (although you may have to pay if you cancel early).
More Choice
You can usually find PCP deals on both new and used cars, so the options are there if you’re looking for something cheaper or don’t have a high credit rating.
It’s a bit like your phone contract, after you’ve paid off a certain amount, you can opt to change the car and start paying on a new plan much like you might upgrade your phone; the choice is yours.
Equally, if you decide to keep the car you can pay what’s called a balloon payment at the end of your contract, this covers the value of the car that you haven’t paid off yet, so once paid you will own the car. The balloon payment value will be written into the contract from the start, based on the expected value of the car at the end of your contract.
Keep in mind that if or until you make that final payment, the car is still considered to be the retailer’s property and isn’t legally yours, so you might have to keep to a mileage limit and make sure the vehicle doesn’t get seriously damaged.
”If you change car often PCP gives you the flexibility to do it in an affordable way
EmanFinancial Adviser, OnestopSave
More for your money
If you like having a reliable new vehicle to drive, then you can theoretically get more for your money by signing up for car finance if you can’t afford to buy it up front.
By spreading the cost over monthly payments with a PCP deal, you’ll probably end up paying interest, which will mean you may pay more than if you bought the car outright – although there are some interest free options to be found if you compare car finance.
The value of a car usually goes down over the years – and some people even say a new car is worth less the moment you drive out of the showroom! This is called depreciation and is baked into PCP finance deals as a prediction of the car’s value at the end of the term.
This is something else to think about when deciding whether to purchase outright or on PCP – if you aren’t planning to make the balloon payment at the end and buy the car outright, it could be more convenient for you to make a swap to a different model and start a new monthly payment plan, rather than have to find a buyer or trade in for a car you own before you can get a new one.
All that said, it’s obviously very important to remember that any personal finance product, like a PCP contract, carries risk and you’ll need to make sure it’s affordable for the whole contract period, otherwise you’ll end up without a car and in an unaffordable situation.
If you’re considering Car Finance, there are other types of payment plans and loans to consider which may work better for you, such as leasing a vehicle, hire purchase (HP) finance and personal car loans.
You might also be interested to read our breakdown of whether buying a car is worth it – there’s a quick decision tree to see whether you’d be better buying a car or committing to the Uber life!
ADVANTAGES OF PCP
- An affordable monthly payment plan
- You do not need to purchase the car
- Take advantage of manufacturer discounts
- You can choose either a new car or a used car
- Flexible contract terms
- You can refinance the balloon payment
- If you cancel the agreement, you don’t have to worry about depreciation
DISADVANTAGES OF PCP
- The balloon payment can be expensive
- You will be charged for damage that falls outside fair wear and tear
- If your credit score is low, you’ll be charged a high interest rate
- You’ll be charged if you exceed your mileage allowance
- If you cancel your contract early it might be expensive
This information is intended for editorial purposes only and not intended as a recommendation or financial advice