ARE PCPS THE FUTURE OF CAR BUYING?
It’s become the most popular way to get your hands on a new car, but do you know how PCP deals work? Here’s what you’re signing up to...
PCPS, or Personal Contract Purchases, are the reason why new cars are more commonly seen now, accounting for 90% of private purchases of new cars**.
THE BENEFITS A PCP helps spread the cost of buying a brand-new car, although most deals will charge you interest, too. You’ll pay a deposit and a fixed monthly sum for three to four years to cover some of the rest of the cost of the car. At the end of the monthly payment period, you’ll be left with a large amount – known as a balloon payment – still to pay (plus an
HOW THE COSTS ADD UP
According to price comparison site Gocompare, this is how much it would cost to buy an Audi A3 Sportback 35 TFSI S Line, costing £27,645, using a typical PCP agreement with a 5.9% APR, compared to buying the car outright using cash.
PCP: INITIAL PAYMENT: £2,765 deposit
Cash: £27,645 full payment
MONTHLY PAYMENTS FOR 48 MONTHS:
PCP: £298 Cash: £0 FINAL PAYMENT: PCP: £11,112 (plus £10 admin fee) Cash: £0 TOTAL COST: PCP: £28,191 Cash: £27,645
admin fee). Either pay the balloon payment to make the car your own, or return the car to the dealership.
THE DOWNSIDE With a PCP, you won’t actually own the car until the end of the agreement. ‘During the term of a PCP, nothing really belongs to you,’ explains Stuart Masson from thecarexpert.co.uk. ‘The car belongs to the finance company. Like your house, if you default on the mortgage, the lending company will have something to say about it.’
He also warns that a PCP brings a risk of debt: ‘The balloon payment is a hidden aspect that people don’t think about. You have borrowed £30,000 but you’ve been paying off nowhere near that. So, if you lose your job, get divorced, your circumstances change or even if you die, you haven’t made anywhere near enough payments to cover the car’s worth.’
To release yourself from a PCP agreement early, you’d be required to pay the outstanding balance, admin fees and the final balloon payment. Some dealerships will let you hand back the car earlier than agreed, but there will often be a settlement fee.
Just like any other loan, you’ll be subject to a credit check to ensure you can afford the monthly payments. The better your credit rating, the easier it’ll be to sign up to a 0% APR contract, if one is available.